SALES Reviewer Government.
The memorandum order was in consideration of NDC’s P57M
I. INTRODUCTION
A. DEFINITION OF SALE (Art. 1458) – By the contract of sale, one of the
contracting parties (seller) obligates himself to transfer the ownership of and to
deliver the possession of a determinate thing, and the other party (buyer) to pay
therefor a price certain in money or its equivalent.
• 2 Obligations of the Seller:
o Transfer the ownership
o Deliver the possession of the subject matter
• Obligation of the Buyer:
o Pay the price certain
• Both are real obligations “to give”
• Subject matter: determinate or at least determinable thing
o Generic objects are valid subject matters of sale
Polytechnic University of the Philippines v. CA, 368 S 691 (2001).
Petitioner NDC (National Development Corp.) a GOCC owned & had in
its disposal a 10 hectare property which is the NDC Compound.
A portion of which was leased to private respondent FIRESTONE
CORPORATION for ceramic manufacturing business. Both parties entered
into a contract of lease for a term of 10 years renewable for another 10 years.
Firestone built several warehouses and facilities therein.
Prior to the expiration of the said lease contract, Firestone wrote NDC
requesting for an extension of their lease agreement. Since business between
NDC and FIRESTONE went smooth, the lease was twice renewed, this time
conferring upon Firestone an express grant the first option to purchase the
leased premise in the event that NDC decided to dispose and sell the properties
including the lot. So Firestone now has the right of first refusal.
Eventually though, a Memorandum Order No. 214 was issued by then
President Corazon Aquino ordering the transfer of the whole NDC compound
to the National Government. The order of conveyance would automatically
result in the cancellation of NDC's total obligation in favor of the National
debt.
And so, pursuant thereto, NDC had no choice but to transfer the property
to Polytechnic University of the Philippines, another GOCC, and in need
of expansion. Firestone therefore instituted an action for specific performance
to compel NDC to sell the leased property in its favor.
ISSUE: Whether or not there is a valid sale between NDC and PUP.
RULING: A contract of sale, as defined in the Civil Code, is a contract where
one of the parties obligates himself to transfer the ownership of and to deliver
a determinate thing to the other or others who shall pay therefore a sum certain
in money or its equivalent. It is therefore a general requisite for the existence of
a valid and enforceable contract of sale that it be mutually obligatory, i.e., there
should be a concurrence of the promise of the vendor to sell a determinate thing
and the promise of the vendee to receive and pay for the property so delivered
and transferred. The Civil Code provision is, in effect, a "catch-all" provision
which effectively brings within its grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration.
All three (3) essential elements of a valid sale, without which there can be no
sale, were attendant in the "disposition" and "transfer" of the property from
NDC to PUP - consent of the parties, determinate subject matter, and
consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum
Order No. 214 which explicitly states the acquiescence of the parties to the sale
of the property. Furthermore, the cancellation of NDC's liabilities in favor of
the National Government constituted the "consideration" for the sale. Subject
matter was the property.
BUT, PUP and NDC’s argument was untenable. GOCCs have personalities
separate and distinct from the government. Since a sale was involved, the right
of first refusal in favor of Firestone must be respected. It forms an integral part
of the lease and is supported by consideration—Firestone having made
substantial investments therein. Only when Firestone fails to exercise such right
may the sale to PUP proceed. The intervention in a transaction of the Office of
the President through the Executive Secretary does not change the independent
existence of a government entity as it deals with another government entity.
 1. Elements of Contract of Sale –
a) Consent: meeting of the minds to transfer ownership in exchange for
the price;
b) Subject Matter; and
c) Price certain in money or its equivalent.
• All 3 elements present = valid, perfected contract of sale
o Validity is not affected by the fact that previously a fictitious
deed of sale was executed by the parties, or by the fact of non-
performance of the obligations thereafter
o Absence of any of the essential elements negates the existence
of a perfected contract of sale, rather than saying it is “void”
o Defect or illegality of any of the elements
§ Contract is voidable if defect is a vitiation of consent
§ Void if falling under Art. 1409 (Contracts that are
inexistent and void from the beginning):
1) Cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
2) Absolutely simulated or fictitious;
3) Cause or object did not exist at the time of the
transaction;
4) Contemplate an impossible service;
5) Intention of the parties relative to the principal object
of the contract cannot be ascertained; and
6) Expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived.
Sanchez v. Mapalad Realty Corp, 541 SCRA 397
Facts: Respondent Mapalad was the registered owner of 4 parcels of land
located along Roxas Boulevard, Baclaran, Paranaque. On March 21, 1986,
shortly after EDSA revolution, Jose Campos executed an affidavit admitting
that Mapaladd was one of the companies held in trust for former President
Marcos. Campos turned over, all assets, properties, records and documents
pertaining to Mapalad to the new administration led by President Corazon
Aquino. PCSS issued writs of sequestration for Mapalad and all its properties.
Rolando Josef, appointed Vice President/Treasurer and GM of Mapalad,
discovered for that there was 4 TCTs missing. Josef inquired about it and
discovered Felicito Manalili, Mapalad’s former director and general manager
took them. On November 16, 1992, Nordelak Development Corporation filed
a notice of adverse claim over the subject properties based on deed of sale
purportedly executed by Miguel Magsaysay in his capacity as President and
board chairman of Mapalad. A. Magsaysay Inc., a corporation controlled by
Miguel Magsaysay, acquired ownership of all the shares of stock of Mapalad
however was terminated after selling all his shares to Novo Properties on
December 3, 1982.
Mapalad commenced the present action for annulment of deed of sale and
reconveyance of title with damages against Nordelak. During the pendency of
the case, Nordelak sold the subject property to a certain Manuel Luis Sanchez,
now petitioner.
Issue: Whether or not there is a valid sale between Mapalad and Nordelak.
Ruling: A contract is defined as a juridical convention manifested in legal
forms, by virtue of which one or more persons bind themselves in favour of
another, to give, to do or not to do. The essential requisites of a valid contract
of sale are (a) consent of the contracting parties, (b) object certain, and (c) cause
of obligation. Consent may be given only by a person with legal capacity to give
consent. In the case of juridical person such as corporation like Mapalad,
consent may only be granted through its officers who have been duly authorized
by its board of directors.
In the present case, consent was purportedly given by Miguel Magsaysay, the
person who signed for and in behalf of Mapalad in the deed of absolute sale.
However, during the trial, he admitted being no longer connected with Mapalad
because he already divested all his interests in said corporation as early as 1982.
Even assuming, for the sake of argument, the signatures were genuine, it would
still be voidable for lack of authority resulting in his capacity to give consent on
the part of Mapalad.
 2. Stages of Contract of Sale –
a) Policitacion, negotiation or preparation—covers the period from the
time the prospective contracting parties indicate their interests in the
contract to the time the contract is perfected;
b) Perfection, conception or “birth”—takes place upon the concurrence of
the essential elements of the sale; and
c) Consummation, or “death”—begins when the parties perform their
respective undertaking under the contract of sale, culminating in the
extinguishment thereof.
Jovan Land v. CA, 268 S 160 (1997)—strictly speaking, there are only 2 stages:
perfection & consummation, since it is only at perfection that sale as a contract
begins to exist in the legal world. Until sale is perfected, it cannot serve as an
independent source of obligation, nor as a binding juridical relation between the
parties.
Facts: Petitioner Jovan Land, Inc. is a corporation engaged in the real estate
business. Its President and Chairman of the Board of Directors is one Joseph
Sy. Private respondent Eugenio Quesada is the owner of the Q Building located
at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila.
Petitioner learned that that private respondent was selling the aforesaid
property. Thus, petitioner through Joseph Sy made a written offer for P10.25
million. This first offer was not accepted by Conrado Quesada, the General
Manager of private respondent. Joseph Sy sent a second written offer for the
same price but inclusive of an undertaking to pay the documentary stamp tax,
transfer tax, registration fees and notarial charges. Check for one million pesos
drawn against the Philippine Commercial and Industrial Bank (PCIB) was
enclosed therewith as earnest money. This second offer, with earnest money,
was again rejected by Conrado Quesada. Undaunted, Joseph Sy, sent a third
written offer for twelve million pesos with a similar check for one million pesos
as earnest money. Annotated on this third letter-offer was the phrase "Received
original, 9-4-89" beside which appears the signature of Conrado Quesada. On
the basis of this annotation which petitioner insists is the proof that there
already exists a valid, perfected agreement to sell the Mayhaligue property,
petitioner filed with the trial court, a complaint for specific performance and
collection of sum of money with damages. Petitioner contends that the said
annotation is evidence to show that there was already a perfected agreement to
sell as respondent can be said to have accepted petitioner's payment in the form
of a check which was enclosed in the third letter.
Issue: Whether or not there was already a perfected contract of sale between
Jovan Land, Inc. and the private respondent?
Held: No.
"xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give
something or to render some service xxx. A contract undergoes various stages
that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
concluded xxx. The perfection of the contract takes place upon the concurrence
of the essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can be valid,
the following elements must be present, viz: (a) consent or meeting of the
minds; (b) determinate subject matter; (3) price certain in money or its
equivalent. Until the contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.
A punctilious examination of the receipt reveals that the same can neither be
regarded as a contract of sale nor a promise to sell. Such an annotation by
Conrado Quesada amounts to neither a written nor an implied acceptance of
the offer of Joseph Sy. It is merely a memorandum of the receipt by the former
of the latter's offer. The requisites of a valid contract of sale are lacking in said
receipt and therefore the "sale" is neither valid nor enforceable. Although there
was a series of communications through letter-offers and rejections as evident
from the facts of this case, still it is undeniable that no written agreement was
reached between petitioner and private respondent with regard to the sale of
the realty. Hence, the alleged transaction is unenforceable as the requirements
under the Statute of Frauds have not been complied with. Under the said
provision, an agreement for the sale of real property or of an interest therein, to
be enforceable, must be in writing and subscribed by the party charged or by an
agent thereof.
 3. Obligations Created (Art. 1165) – 2 sets of real obligations
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by Art. 1170 [Those who in the performance of
their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.], may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
4. Characteristic of Sale –
• Nominate and Principal
o Nominate: as contracts of sale have a particular name given by
law, more importantly, its nature and consequences are governed
by a set of rules in the Civil Code, known as the “Law on Sales”
o Principal: as contrasted from accessory or preparatory contracts
because it can stand on its own and does not depend on another
contract for its validity or existence. Parties enter into sale to
achieve within its essence the objectives of the transaction, and
simply not in preparation for another contract.
o In determining the nature of a contract, courts look at the intent
of the parties, not the nomenclature used to describe it, and that
pivotal to deciding such issue is the true aim and purpose of the
contracting parties as shown by the terminology used in the
covenant, as well as “by their conduct, words, actions and deeds
prior to, during and immediately after executing the agreement.”
o Contracts are not defined by the parties thereto but by the
principles of law; and that in determining the nature of a
contract, the courts are not bound by the name or title given to
it by the contracting parties
o All other contracts which have for their objective the transfer of
ownership and delivery of possession of a determinate subject
matter for a valuable consideration, are governed necessarily by
the Law on Sales.
• Consensual: since it is perfected by mere consent at the moment there
is a meeting of the minds upon the thing which is the object of the
contract and upon the price
o From the moment, the parties may reciprocally demand
performance, even when the parties have not affixed their
signatures to the written form of such sale, but subject to the
provisions of the law governing the forms of contract (Art. 1475,
Civil Code)
o The essence of consent is the agreement of the parties on the
terms of the contract, the acceptance by one of the offer made
by the other (Pacific Oxygen and Acetylene Co. v. Central Bank, 1971).
o The party who alleges consensual contract must show its
existence by competent proof, as well as of the essential elements
thereof.
• Bilateral: By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefore a price certain in money
or its equivalent.
o A contract of sale cannot be unilateral because there are
reciprocal obligations in a contract of sale. (Art. 1458, Civil Code)
o A contract of sale is one wherein both the contracting parties are
bound to fulfill the obligations reciprocally towards each other
(i.e. the vendor becomes bound to deliver the thing sold and the
vendee pays the price)
• Onerous: the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory
ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor. (Art. 1350, Civil Code)
o A contract of sale is essentially onerous. Otherwise, it may be
another contract. It may be a donation if there is no
compensation for the transfer of ownership to the other party.
• Commutative/Aleatory: By an aleatory contract, one of the parties or
both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of
an event which is uncertain, or which is to occur at an indeterminate time.
(Art. 2010, Civil Code)
 o A contract of sale is one in which each of the contracting parties
gives a thing of value and receives an equivalent.
o There is equivalency in the value of the prestation to be
performed by both parties.
o A sale of hope is a contract of sale which is aleatory. In a sale of
hope, the obligation of one party will arise upon the happening
of a certain event or condition.
o A sale of hope is VALID.
Balatbat v. CA, G.R. No. 109410, August 28, 1996;
Facts:
A parcel of land was acquired by plaintiff Aurelio Roque and Maria Mesina
during their conjugal union. Maria died on August 28, 1966. On June 15, 1977,
Aurelio filed a case for partition. The trial court held that Aurelio is entitled to
the ½ portion at his share in the conjugal property, and 1/5 of the other half
which formed part of Maria’s estate, divided equally among him at his 4
children. The decision having become final and executory, the Register of
Deeds of Manila issued a transfer certificate of title on October 5, 1979
according to the ruling of the court. On April 1, 1980, Aurelio sold his 6/10
share to spouses Aurora Tuazon-Repuyan and Jose Repuyan, as evidenced by a
deed of absolute sale. On June 21, 1980, Aurora caused the annotation of her
affidavit of adverse claim. On August 20, 1980, Aurelio filed a complaint for
rescission of contract grounded on the buyers’ failure to pay the balance of the
purchase price. On February 4, 1982, another deed of absolute sale was
executed between Aurelio and his children, and herein petitioner Clara Balatbat,
involving the entire lot. Balatbat filed a motion for the issuance of writ of
possession, which was granted by the court on September 20, 1982, subject to
valid rights and interests of third persons. Balatbat filed a motion to intervene
in the rescission case, but did not file her complaint in intervention. The court
ruled that the sale between Aurelio and Aurora is valid.
Issues:
(1) Whether the alleged sale to private respondents was merely executory
(2) Whether there was double sale
(3) Whether petitioner is a buyer in good faith and for value
Held:
(1) Contrary to petitioner's contention that the sale dated April 1, 1980 in favor
of private respondents Repuyan was merely executory for the reason that there
was no delivery of the subject property and that consideration/price was not
fully paid, we find the sale as consummated, hence, valid and enforceable. The
Court dismissed vendor's Aurelio Roque complaint for rescission of the deed
of sale and declared that the Sale dated April 1, 1980, as valid and enforceable.
No appeal having been made, the decision became final and executory.
The execution of the public instrument, without actual delivery of the thing,
transfers the ownership from the vendor to the vendee, who may thereafter
exercise the rights of an owner over the same. In the instant case, vendor Roque
delivered the owner's certificate of title to herein private respondent. The
provision of Article 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the
validity of a contract of sale of a parcel of land that this be embodied in a public
instrument. A contract of sale being consensual, it is perfected by the mere
consent of the parties. Delivery of the thing bought or payment of the price is
not necessary for the perfection of the contract; and failure of the vendee to pay
the price after the execution of the contract does not make the sale null and
void for lack of consideration but results at most in default on the part of the
vendee, for which the vendor may exercise his legal remedies.
(2) Article 1544 of the Civil Code provides that in case of double sale of an
immovable property, ownership shall be transferred (1) to the person acquiring
it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in
default thereof, to the person who presents the oldest title, provided there is
good faith. In the case at bar, vendor Aurelio Roque sold 6/10 portion of his
share to private respondents Repuyan on April 1, 1980. Subsequently, the same
lot was sold again by vendor
Aurelio Roque (6/10) and his children (4/10), represented by the Clerk of Court
pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982.
Undoubtedly, this is a case of double sale contemplated under Article 1544 of
the New Civil Code.
Evidently, private respondents Repuyan's caused the annotation of an adverse
claim on the title of the subject property on July 21, 1980. The annotation of
the adverse claim in the Registry of Property is sufficient compliance as
mandated by law and serves notice to the whole world. On the other hand,
petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly,
private respondents who first caused the annotation of the adverse claim in
good faith shall have a better right over herein petitioner. As between two
purchasers, the one who has registered the sale in his favor, has a preferred right
over the other who has not registered his title even if the latter is in actual
possession of the immovable property. Further, even in default of the first
registrant or first in possession, private respondents have presented the oldest
title. Thus, private respondents who acquired the subject property in good faith
and for valuable consideration established a superior right as against the
petitioner.
(3) Petitioner cannot be considered as a buyer in good faith. If petitioner did
investigate before buying the land on February 4, 1982, she should have known
that there was a pending case and an annotation of adverse claim was made in
the title of the property before the Register of Deeds and she could have
discovered that the subject property was already sold to the private respondents.
It is incumbent upon the vendee of the property to ask for the delivery of the
owner's duplicate copy of the title from the vendor. One who purchases real
estate with knowledge of a defect or lack of title in his vendor cannot claim that
he has acquired title thereto in good faith as against the true owner of the land
or of an interest therein; and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title
of his vendor. Good faith, or the want of it is not a visible, tangible fact that can
be seen or touched, but rather a state or condition of mind which can only be
judged of by actual or fancied tokens or signs.
Agasen v. CA, G.R. No. 115508, February 15, 2000;
Facts: Private respondent Bilog sued herein petitioners for Recovery of
Possession and Ownership involving a parcel of land registered in her name
under TCT No. T-16109. Petitioners, in their Answer, claimed that they became
the owners of the subject land by virtue of a Deed of Absolute Sale in their
favor, and by a notarized Partition with Sale.
The trial court found for the validity of petitioners' documents, dismissed the
complaint and declared TCT No. 16109 in the name of private respondent null
and void.
On appeal, the CA reversed the decision of the lower court and ruled that
private respondent’s testimonial and documentary evidence "junked"
petitioners’ documents.
Thus, this petition.
Issue: Whether or not the two documents, relied upon by petitioners as basis
for their claim of ownership, are valid.
Ruling: It is not denied that the two subject documents are notarized
documents and, as such, are considered public documents which enjoy the
presumption of validity as to authenticity and due execution. The legal
presumption of validity of petitioners’ duly notarized public documents has not
been overcome by preponderant evidence by private respondent, upon whom
the burden of proof rests, having alleged the contrary.
Private respondent should have specifically denied under oath their genuineness
and due execution. Having failed to specifically deny under oath the genuineness
and due execution of the said documents, private respondent is deemed to have
admitted the same.
And while private respondent denied having signed any document selling the
subject parcels of land, the trial court found her signature on the subject
documents to be genuine, after a comparison thereof with her own
documentary evidence on record. Indeed, it has been held that where a
comparison is permissible, it may be made by the court, with or without the aid
of expert witnesses; and evidence respecting handwriting may be given by a
comparison made by the court with writings admitted or treated as genuine by
the party against whom the evidence is offered.
The following circumstances all indicate the genuineness and due execution of
the subject documents: (1) The subject documents were duly notarized public
documents; (2) The documents enjoy the legal presumption of validity; (3) Their
genuineness and due execution were not specifically denied under oath by
private respondent; (4) Private respondent’s signature thereon were found
genuine by the lower court upon a comparison of her signature thereon with
that in her own documentary evidence; (5) The actual identification and positive
testimony of petitioner; and (6) The testimony of the lawyer who had notarized
one of the subject documents. Private respondent’s bare denial of the same
cannot, by any measure, overcome the above-mentioned evidence and legal
presumptions in petitioners’ favor.
Petition GRANTED; Decision of the CA SET ASIDE; Decision of the trial
court REINSTATED.
City of Cebu v. Heirs of Rubi, G.R. No. 128579, April 29, 1999;
FACTS: Candido Rubi and the Province of Cebu entered into lease agreement
over a parcel of land. After a few years, the Province conveyed to the City of
Cebu by way of donation several parcels of land, including the land leased by
Candido. The City put the said parcels of land up for public auction; one of the
conditions for the auction is that if a parcel of land is under lease, the lessor has
the option to match the highest bid placed over the parcel of land.
During the bidding period, Candido exercised his right to match the highest bid,
giving notice of his offer to the City Administrator; then the Administrator gave
notice of acceptance of the offer of Candido to match the bid. In 1965, a day
after the bid was finalized, the Province, in a civil case, enjoined the City from
conveying the parcel of land donated to it. In 1974, a compromise agreement
was made in the Civil Case and Candido’s parcel of land was adjudicated in the
City’s favour.
From 1976, onwards, Candido made his initial payments and asked for
extensions of his deadline, which were approved by the City. At this juncture,
Candido dies and was succeeded by his compulsory heirs. In 1989, the Heirs of
Rubi initiated an action for specific performance and consigned the outstanding
balance of Candido’s payment. The City averred that the contract was a mere
Contract to Sell; the City reserved its ownership until full payment is made and
such is a positive suspensive condition to give rise to an obligation. The trial
court ruled in favour of the City. The Court of Appeals reversed the decision,
averring that there is a perfected contract of sale.
ISSUE:
1. Is there a reservation of ownership by the City over the parcel of land?
2. Is there a contract of sale?
RULING: The Supreme Court agreed with the Court of Appeals, there is a
perfected contract of sale. First, there was no express reservation of ownership
stipulated. Second, the requisites of a contract of sale are present. The price of
the land and the object parcel is determined. The perfection was borne out of
the acceptance of the City of the bid of Candido during the auction. The
obligation to deliver or to convey to the highest bidder the parcel of land and
the bidder to pay the bid price is already in effect.
Thus, the Supreme Court affirmed the ruling of the Court of Appeals, granting
the action for specific performance in favour of the Heirs of Candido Rubi.
Londres v. CA, 394 S 133 (2002);
Facts:
1. Filomena Vidal (mother of the petitioners) sold 2 parcels of land (Lots
1320, 1333) to Consolacion and Julian Alovera
2. Petitioners seek for the declaration of nullity of the contract, because
the validity for the Absolute Sale is in doubt due to alleged tampering.
(+just compensation vs. DPWH)
o The cadastral lot number of the second lot mentioned in the
Absolute Sale was altered to read Lot 1333 when it was
originally written as Lot 2034. Lot 2034 was also written in
the copy of the Records Mgt. and Archives Ofc.
3. The Aloveras explained that Julian was in good faith and that he was
deaf and dumb, so he was placed at a disadvantageous position. When
they discovered that the Absolute Sale indicated Lot 2034, they went
back to Filomena, who made the correction. However, the copy of the
notary remained unchanged.
4. TC decided in favor of the Aloveras:
a. The description in the Absolute Sale corresponds to Lot 1333.
b. The Absolute Sale states that the lot is in Brgy. Baybay, where
Lot 1333 is situated. Lot 2034, on the other hand, can be
found in Brgy. Culasi.
c. Plus, there was no evidence that pet’s family owned Lot 2034
at any time.
Issue: w/n the Absolute Sale is valid
Held: YES: the true object of the sale is Lot 1333
1. The correction was made to reflect the true object of the sale, Lot 1333.
2. Petitioners rely on the technical descriptions of Lots 1320 and 1333
that were issued by the Bureau of Lands on November 8, 1988. When
private respondents and Filomena executed the sale, they based the
description of the two lots on the tax declarations of Filomena.. What
really defines a piece of land is not the area mentioned in its
description, but the boundaries therein laid down, as enclosing the land
and indicating its limits. In this case, the boundaries of the two lots are
sufficiently designated in the Absolute Sale, leaving no room to doubt
the identity of the objects of the sale.
3. Lot 2034 does not fit the description of the 2nd parcel in the Absolute
Sale.
when one sells or buys real property, one sells or buys the property as
he sees it, in its actual setting and by its physical metes and bounds,
and not by the mere lot number assigned to it in the certificate of title.
As long as the true intentions of the parties are evident, the mistake
will not vitiate the consent of the parties, or affect the validity and
binding effect of the contract between them.
a. evidence shows that the designation of the second parcel
of land sold as Lot 2034 was merely an oversight or a
typographical error. The intention of the parties to the
Absolute Sale became unmistakably clear when private
respondents, as vendees, took possession of Lots 1320
and 1333 in the concept of owners without the objection
of Filomena, the vendor.
4. Even if the notarized copy indicated the wrong lot, the intent of the
parties must prevail. Non-compliance w/ formal requirements does
not adversely affect the validity of the contract or the rights and
obligations of the parties.
Gaite v. Fonacier, 2 SCRA 830 (1961);
Facts:
– Fonacier owned 11 iron lode mineral claims, known as the Dawahan Group,
located in Camarines Norte. He appointed Gaite as his attorney-in-fact to enter
into contracts with individual or juridical persons for the exploration and
development of the mining claims. Gaite in turn executed a general assignment
conveying the development of the mining claims into the Larap Iron Mines, a
single proprietorship owned by him. Then he started the development of those
mining claims.
– Fonacier decided to revoke the authority granted by him to Gaite, and Gaite
assented, subject to certain conditions. They entered into a contract, where
Gaite transferred to Fonacier, for P20k, all his rights and interests on the roads
and facilities in the claims, plus the right to use the business name “Larap Iron
Mines.” Gaite also transferred to Fonacier, for P75k, all this rights and interests
over the tons of iron ore that he already extracted from the mineral claims. P10k
of this was paid upon signing and the contract stated that “the balance of P65k
will be paid from and out of the first letter of credit covering the first shipment
of iron ores and of the first account derived from the local sale of iron ore made
by Larap.” To secure the payment, Fonacier delivered to Gaite a surety bond.
Gaite wanted another bond, so Fonacier executed a second one, but it provided
that the liability of the surety company would attach only when there had been
an actual sale of iron ore for an amount of no less than P65k, and that the
liability of said surety company would automatically expire on Dec 1955.
– Up to Dec 1955, when the bond expired with respect to the surety company,
no sale of thet ons of iron ore had been made by Larap, nor had the P65k
balance of the price of said ore been paid to Gaite by Fonacier and his sureties,
the second bond automatically expired. And when Fonacier and his sureties
failed to pay, Gaite filed the present complaint against them for the payment of
the P65k balance.
○ The defendants set up the defense that the obligation sued upon by Gaite was
subject to a condition that the amount of P65k would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount
derived from the local sale of the iron ore by Larap, and that up to the time of
the filing of the complaint no sale of the iron ore had been made. Therefore,
the obligation was not due and demandable yet.
○The lower court held in favor of Gaite, and the defendants were ordered to
pay theP65k.
The lower court held that the obligation of the defendants to pay Gaite was one
with a term: that it would be paid upon the sale of sufficient iron ore, such sale
to be effected on or before Dec 1955, and that as the latter failed to put up a
good and sufficient security after the bond expired, the oblig became due and
demandable.
Issue: Is the obligation of Fonacier to pay Gaite the P65k an obligation with a
period or term and not one with a suspensive condition?

Held: Obligation was subject to a suspensive period or term. Lower court
decision affirmed.
– A contract of sale is normally commutative and onerous. Not only does each
of the parties assume a correlative obligation (the seller to deliver and transfer
ownership of the thing sold and the buyer to pay the price), but each party
anticipates performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an uncertain event, so
that the other understands that he assumes the risk of receiving nothing for
what he gives, it isn’t in the usual course of business to do so. Hence, the
contingent character of the obligation must clearly appear. Nothing is found in
the record to evidence that Gaite desired or assumed to run the risk of losing
his right over the ore without getting paid for it, or that Fonacier understood
that Gaite assumed any such risk. This is proven by the fact that Gaite insisted
on a bond to guarantee payment of the P65k.
– Plus, to subordinate the oblig to pay the remaining P65k as condition
precedent would be tantamount to leaving the payment at the discretion of the
debtor, for the sale or shipment could not be made unless steps were taken to
sell the ore.
– Fonacier has forefeited the right to compel Gaite to wait for the sale of the
ore before receiving payment of the balance of P65k, because of their failure to
renew the bond or else replace it with an equivalent guarantee.
Spouses Buenaventura v. Court of Appeals, G.R. No. 126376, November
2003
Facts: Sought to be declared null and void ab initio are certain deeds of sale of
real property executed by defendant parents Leonardo Joaquin and Feliciana
Landrito in favor of their co-defendant children. The petitioners contend that
there was no actual valid consideration and that assuming that there was
consideration in the sums reflected the properties are more than three-fold
times more valuable than the small sums appearing therein. The RTC ruled in
favor of the defendants and dismissed the case. RTC’s ruling was affirmed by
CA. Hence the appeal.
Issue: Whether or not there was a valid consideration in the deeds of sale
Held: If there is a meeting of the minds of the parties as to the price, the
contract of sale is valid, despite the manner of payment, or even the breach of
that manner of payment. If the real price is not stated in the contract, then the
contract of sale is valid but subject to reformation.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or undue
influence.
Article 1470 of the Civil Code further provides: Gross inadequacy of price does
not affect a contract of sale, except as may indicate a defect in the consent, or
that the parties really intended a donation or some other act or contract.
Petitioners failed to prove any of the instances mentioned in Articles 1355 and
1470 of the Civil Code which would invalidate, or even affect, the Deeds of
Sale. Indeed, there is no requirement that the price be equal to the exact value
of the subject matter of sale. All the respondents believed that they received the
commutative value of what they gave.
• SALE IS A TITLE, NOT A MODE—It creates the obligation on the part
of a seller to transfer ownership and deliver possession, but on its own sale is
not a mode that transfers ownership. Real right of ownership is transferred
only by delivery to the buyer
o Title (like sale) is the juridical justification, mode (like delivery) is
the actual process of acquisition or transfer of ownership over a
thing
o Mode is the legal means by which dominion or ownership is created,
transferred or destroyed.
o Sale by itself does not transfer or affect ownership. The most it does is
create the obligation to do so.
B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS
1. Donation (Arts. 725 and 1471)
Art. 725. Donation is an act of liberality whereby a person disposes gratuitously
of a thing or right in favor of another, who accepts it.
• Compared to Sale being essentially onerous. Sale is perfected by mere consent;
donation must comply with the formalities mandated by law for its validity.
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to
have been in reality a donation, or some other act or contract.
2. Barter (Arts. 1468, 1638 to 1641)
Art. 1468. If the consideration of the contract consists partly in money, and partly
in another thing, the transaction shall be characterized by the manifest intention
of the parties. If such intention does not clearly appear, it shall be considered a
barter if the value of the thing given as a part of the consideration exceeds the
amount of the money or its equivalent; otherwise, it is a sale.
Rules to Determine whether contract is sale or barter:
• Manifest intention of the parties—even if the acquisition of a thing is paid
for by another object of greater value than the money component, it may still
be a sale and not a barter, when such was the intention of the parties.
• When intention does not appear and consideration consists partly in
money and partly in another thing:
o It is a barter, where the value of the thing given as part of the
consideration exceeds the amount of money given or its equivalent;
o It is a sale, where the value of the thing given as part of the consideration
equals or is less than the amount of money given.
Art. 1638. By the contract of barter or exchange one of the parties binds himself
to give one thing in consideration of the other's promise to give another thing.
Art. 1641. As to all matters not specifically provided for in this Title, barter shall
be governed by the provisions of the preceding Title relating to sales.
• The two rules specifically provided for barter contracts, but which are similar
anyway to the rules on warranty against eviction applicable to sale, are as
follows:
(a) If one of the contracting parties, having received the thing promised
in barter, should prove that it did not belong to the person who gave it,
he cannot be compelled to deliver that which he offered in exchange, but
he shall be entitled to damages; and
(b) One who loses by eviction the thing received in barter may recover
that which he gave in exchange with a right to damages, or he can only
make use of the right to recover the thing which he has delivered while
the same remains in the possession of the other party, but without
prejudice to the rights acquired in good faith by a third person.
• By barter or exchange, one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing; whereas, by sale,
one of the parties binds himself to deliver a thing in consideration of the
other’s undertaking to pay the price in money or its equivalent.
3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)
Art. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract of
sale, but if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is a contract for a piece of work.
Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or also
furnish the material.
Art. 1715. The contractor shall execute the work in such a manner that it has the
qualities agreed upon and has no defects which destroy or lessen its value or fitness
for its ordinary or stipulated use. Should the work be not of such quality, the
employer may require that the contractor remove the defect or execute another
work. If the contractor fails or refuses to comply with this obligation, the employer
may have the defect removed or another work executed, at the contractor's cost.
Celestino & Co. v. Collector, 99 Phil. 841 (1956);
Facts: Celestino Co & Company is a duly registered general co-partnership
doing business under the trade name of “Oriental Sash Factory”. From 1946 to
1951 it paid percentage taxes of 7% on the gross receipts of its sash, door and
window factory, in accordance with sec. 186 of the National Internal Revenue
Code which is a tax on the original sales of articles by manufacturer, producer
or importer. However, in 1952 it began to claim only 3% tax under Sec. 191,
which is a tax on sales of services. Petitioner claims that it does not manufacture
ready-made doors, sash and windows for the public, but only upon special
orders from the customers, hence, it is not engaged in manufacturing under sec
186, but only in sales of services covered by sec 191. Having failed to convince
BIR, petitioner went to the Court of Tax Appeal where it also failed. CTA, in
its decision, holds that the “petitioner has chosen for its tradename and has
offered itself to the public as a “Factory”, which means it is out to do business,
in its chosen lines on a big scale. As a general rule, sash factories receive orders
for doors and windows of special design only in particular cases but the bulk of
their sales is derived from a ready-made doors and windows of standard sizes
for the average home.. Even if we were to believe petitioner’s claim that it does
not manufacture ready-made sash, doors and windows for the public and that
it makes these articles only special order of its customers, that does not make it
a contractor within the purview of section 191 of the national Internal Revenue
Code… there are no less than fifty occupations enumerated in the aforesaid
section…and after reading carefully each and every one of them, we cannot find
under which the business of manufacturing sash, doors and windows upon
special order of customers fall under the category” mentioned under Sec 191.
Issue: Whether the petitioner company provides special services or is engaged
in manufacturing.
Held: The important thing to remember is that Celestino Co & Company
habitually makes sash, windows and doors, as it has represented in its stationery
and advertisements to the public. That it “manufactures” the same is practically
admitted by appellant itself. The fact that windows and doors are made by it
only when customers place their orders, does not alter the nature of the
establishment, for it is obvious that it only accepted such orders as called for
the employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture. The Oriental Sash
Factory does nothing more than sell the goods that it mass-produces or
habitually makes; sash, panels, mouldings, frames, cutting them to such sizes
and combining them in such forms as its customers may desire.
Appellant invokes Article 1467 of the New Civil Code to bolster its contention
that in filing orders for windows and doors according to specifications, it did
not sell, but merely contracted for particular pieces of work or “merely sold its
services”. In our opinion when this Factory accepts a job that requires the use
of extraordinary or additional equipment, or involves services not generally
performed by it-it thereby contracts for a piece of work — filing special orders
within the meaning of Article 1467. The orders herein exhibited were not shown
to be special. They were merely orders for work — nothing is shown to call
them special requiring extraordinary service of the factory. The thought occurs
to us that if, as alleged-all the work of appellant is only to fill orders previously
made, such orders should not be called special work, but regular work. The
Supreme Court affirms the assailed decision by the CTA.
Commissioner of Internal Revenue v. Engineering Equipment & Supply
Co., 64 SCRA 590 (1975);
Facts:
· Engineering Equipment and Supply Co. (Engineering for short), a domestic
corporation, is an engineering and machinery firm. As operator of an integrated
engineering shop, it is engaged, among others, in the design and installation of
central type air conditioning system, pumping plants and steel fabrications.
· On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now
Commissioner, of Internal Revenue denouncing Engineering for tax evasion by
misdeclaring its imported articles and failing to pay the correct percentage taxes
due thereon in connivance with its foreign suppliers. Engineering was likewise
denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar
allocations. Acting on these denunciations, a raid and search was conducted by
a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and
Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which
occasion voluminous records of the firm were seized and confiscated
· On September 30, 1957, revenue examiners Quesada and Catudan reported
and recommended to the then Collector, now Commissioner, of Internal
Revenue that Engineering be assessed for P480,912.01 as deficiency advance
sales tax on the theory that it misdeclared its importation of air conditioning
units and parts and accessories thereof which are subject to tax under Section
185(m) of the Tax Code,
· On March 3, 1959. the Commissioner assessed against, and demanded
upon, Engineering payment of the increased amount and suggested that
P10,000 be paid as compromise in extrajudicial settlement of Engineering's
penal liability for violation of the Tax Code. The firm, however, contested the
tax assessment and requested that it be furnished with the details and particulars
of the Commissioner's assessment
· Engineering appealed to the Court of Tax Appeals. CTA rendered a
decision in favor of Engineering, declared exempt from the deficiency
manufacturers sales tax covering the period from June 1, 1948. to September 2,
1956. However, petitioner is ordered to pay respondent, or his duly authorized
collection agent, the sum of P174,141.62 as compensating tax and 25%
surcharge for the period from 1953 to September 1956. With costs against
petitioner.
· Not satisfied, both appealed before the SC. Since the two cases are similar,
both will be tried together.
Issue: W/ON Engineering is a manufacturer of air conditioning units under
Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a
contractor under Section 191 of the same Code.
Held: Contractor. The distinction between a contract of sale and one for
work, labor and materials is tested by the inquiry whether the thing transferred
is one not in existence and which never would have existed but for the order of
the party desiring to acquire it, or a thing which would have existed and has
been the subject of sale to some other persons even if the order had not been
given.
The word "contractor" has come to be used with special reference to a person
who, in the pursuit of the independent business, undertakes to do a specific job
or piece of work for other persons, using his own means and methods without
submitting himself to control as to the petty details. The true test of a
contractor, would seem to be that he renders service in the course of an
independent occupation, representing the will of his employer only as to the
result of his work, and not as to the means by which it is accomplished.
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the
buildings of its various customers the central type air conditioning system;
prepares the plans and specifications therefor which are distinct and different
from each other; the air conditioning units and spare parts or accessories thereof
used by petitioner are not the window type of air conditioner which are
manufactured, assembled and produced locally for sale to the general market;
and the imported air conditioning units and spare parts or accessories thereof
are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements.
Engineering & Machinery Corp. v. CA, 252 SCRA 156.
Facts:
Almeda and Engineering signed a contract, wherein Engineering undertook to
fabricate, furnish and install the air-conditioning system in the latter’s building
along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was
to furnish the materials, labor, tools and all services required in order to so
fabricate and install said system. The system was completed in 1963 and
accepted by private respondent, who paid in full the contract price.
Almeda learned from the employees of NIDC of the defects of the air-
conditioning system of the building. Almeda spent for the repair of the air-
conditioning system. He now sues Engineering for the refund of the repair.
Engineering contends that the contract was of sale and the claim is barred by
prescription since the responsibility of a vendor for any hidden faults or defects
in the thing sold runs only for 6 months (Arts 1566, 1567, 1571). Almeda
contends that since it was a contract for a piece of work, hence the prescription
period was ten years (Hence Art 1144 should apply on written contracts).
RTC found that Engineering failed to install certain parts and accessories called
for by the contract, and deviated from the plans of the system, thus reducing its
operational effectiveness to achieve a fairly desirable room temperature.
Issue:
1) Whether the contract for the fabrication and installation of a central air-
conditioning system in a building, one of “sale” or “for a piece of work”?
CONTRACT FOR PIECE OF WORK.
2) Corrollarily whether the claim for refund was extinguished by prescription?
NO.
Held:
1) A contract for a piece of work, labor and materials may be distinguished from
a contract of sale by the inquiry as to whether the thing transferred is one not
in existence and which would never have existed but for the order, of the person
desiring it. In such case, the contract is one for a piece of work, not a sale. On
the other hand, if the thing subject of the contract would have existed and been
the subject of a sale to some other person even if the order had not been given,
then the contract is one of sale.
A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not is a contract of sale, but
if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a piece of work.

The contract in question is one for a piece of work. It is not petitioner’s line of
business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its
business and particular field of expertise is the fabrication and installation of
such systems as ordered by customers and in accordance with the particular
plans and specifications provided by the customers. Naturally, the price or
compensation for the system manufactured and installed will depend greatly on
the particular plans and specifications agreed upon with the customers.
2)The original complaint is one for damages arising from breach of a written
contract – and not a suit to enforce warranties against hidden defects – we here
– with declare that the governing law is Article 1715 (supra). However,
inasmuch as this provision does not contain a specific prescriptive period, the
general law on prescription, which is Article 1144 of the Civil Code, will apply.
Said provision states, inter alia, that actions “upon a written contract” prescribe
in ten (10) years. Since the governing contract was executed on September 10,
1962 and the complaint was filed on May 8, 1971, it is clear that the action has
not prescribed.
4. Agency to Sell (Art. 1466) – In construing a contract containing
provisions characteristic of both the contract of sale and of the
contract of agency to sell, the essential clauses of the whole
instrument shall be considered.
Quiroga v. Parsons, 38 Phil. 501 (1918);
FACTS: A contract was entered into between Andres Quiroga and J. Parsons,
who were both merchants, which granted the exclusive right to sell his beds in
the Visayan Islands to Parsons under the following conditions: 1) There be a
discount of 2.5% as commission for the sale; 2) Parsons shall order the beds by
the dozen, whether of the same or of different styles; 3) Expenses for
transportation and shipment shall be borne by Quiroga; 4) Parsons is bound to
pay Quiroga for the beds received within 60 days from the date of their
shipment; 5) If Quiroga should request payment before the invoice falls due, it
shall be considered as prompt payment with 2% deduction; 6) 15-day notice
must at least be given by Quiroga before any alteration in price of beds; and 7)
Parsons binds himself to only sell Quiroga beds. Quiroga alleged that Parsons
breached its contract by selling the beds at a higher price, not having an open
establishment in Iloilo, not maintaining a public exhibition, and for not ordering
the beds by the dozen. Only the last imputation was provided for by the
contract, the others were not stipulated. Quiroga argued that since there was a
contract of agency between them, such obligations were necessarily implied.
ISSUE: Is the contract between them one of agency, not of sale?
HELD: No. The agreement between Quiroga and Parsons was that of a simple
purchase and sale — not an agency. Quiroga supplied the beds, while Parsons
had the obligation to pay their purchase price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third person, and
if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.
There was mutual tolerance in the performance of the contract in disregard of
its terms; and it gives no right to have the contract considered, not as the parties
stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such
interpretation is necessary.
Puyat v. Arco Amusement Co., 72 Phil. 402' (1941);
FACTS: Arco Amusement was engaged in the business of operating
cinematographs while Gonzalo Puyat & Sons (GPS) was the exclusive agent in
the Philippines for the Starr Piano Company (SPC). Desiring to equip its
cinematograph with sound reproducing devices, Arco approached GPS,
through its president, Gil Puyat, and an employee named Santos. After some
negotiations, it was agreed between the parties that GPS would order sound
reproducing equipment from SPC and that Arco would pay GPS, in addition to
the price of the equipment, a 10% commission, plus all expenses such as freight,
insurance, etc. When GPS inquired SPC the price (without discount) of the
equipment, the latter quoted such at $1,700.00 FOB Indiana. Being agreeable
to the price, Arco formally authorized the order. The following year, both
parties agreed for another order of sound reproducing equipment on the same
terms as the first at $1,600.00 plus 10% plus all other expenses. 3 years later,
Arco discovered that the prices quoted to them by GPS with regard to their first
2 orders mentioned, were not the net prices but rather the latter has obtained a
discount from SPC thus, equipment is deemed overpriced and GPS had to
reimburse the excess amount.
ISSUE: Is there a contract of agency?
HELD: No. The contract between the petitioner and the respondent was one
of purchase and sale. The letters, Exhibits 1 and 2, by which the respondent
accepted the prices of $1,700.00 and $1,600.00, respectively, for the sound
reproducing equipment subject of its contract with petitioner, are clear in their
terms and admit no other interpretation that the respondent in question at the
prices indicated which are fixed and determinate. The respondent admitted in
its complaint with the CFI of Manila that the petitioner agreed to sell to it the
first sound reproducing equipment. To hold the petitioner an agent of the
respondent in the purchase of equipment and machinery from the SPC of
Richmond, Indiana, is incompatible with the admitted fact that the petitioner is
the exclusive agent of the same company in the Philippines. It is out of the
ordinary for one to be the agent of both the vendor and the purchaser.
Ker and Co., Ltd. V. Lingad, acting Commissioner of Internal Revenue,
38 SCRA 524 (1971)
Facts:
1. The Commissioner of Internal Revenue assessed the Petitioner to pay
P20,272 as commercial broker’s percentage tax.
2. Petitioner requested for its cancellation but was denied and deemed
liable as an agent of United States Rubber International (Company).
3. Petitioner was the Company’s distributor. Their contract provides that
Petitioner, as distributor, cannot dispose of the products for shipment
in places other than those designated, unless written consent was first
obtained from the Company. However, the prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject
to the discretion of the Company. Likewise, the crucial stipulations
state that (1) the consignment remains property of the Company until
sold by the distributor and (2) “the distributor is not constituted as an
agent of the Company by this contract for any purpose whatsoever.”
Issue: Whether the relationship of Ker and Co and US rubber was that of a
vendor- vendee or principal-broker
Ruling: The relationship of Ker and Co and US rubber was that of a principal-
broker/ agency. The decisive test is the retention of the ownership of the goods
delivered to the possession of the dealer, like herein petitioner, for resale to
customers; the price and terms remaining subject to the control of the firm
consigning such goods.
1. Upon analysis of the contract, as a whole, together with the actual
conduct of the parties in respect thereto, we have arrived at the
conclusion that the relationship between them is one of brokerage or
agency.
2. According to the National Internal Revenue Code, a commercial
broker "includes all persons, other than importers, manufacturers,
producers, or bona fide employees, who, for compensation or profit,
sell or bring about sales or purchases of merchandise for other persons
or bring proposed buyers and sellers together, or negotiate freights or
other business for owners of vessels or other means of transportation,
or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes
commission merchants."
3. Since the company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers, the price
and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency.
4. If the transfer of title puts the transferee in the attitude or position of
an owner and makes him liable to the transferor as a debtor for the
agreed price, and not merely as an agent who must account for the
proceeds of a resale, it is a sale; while the essence of an agency to sell
is the delivery to an agent, not as his property, but as the property of
the principal, who remains the owner and has the right to control sales,
fix the price and terms, demand and receive the proceeds less the
agent’s commission upon sales made.
5. Mere disclaimer in a contract that an entity like Petitioner is not “the
agent or legal representative for any purpose whatsoever” does not
suffice to yield the conclusion that it is an independent merchant if the
 control over the goods for resale of the goods consigned is pervasive
in character.
Ker and Co is only an agent of the US rubber because it can dispose of the
products of the Company only to certain persons or entities and within
stipulated limits, unless excepted by the contract or by the Rubber Company, it
merely receives, accepts and/or holds upon consignment the products, which
remain properties of the latter company, every effort shall be made by petitioner
to promote in every way the sale of the products and that sales made by
petitioner are subject to approval by the company. Since the company retained
ownership of the goods, even as it delivered possession unto the dealer for
resale to customers, the price and terms of which were subject to the company’s
control, the relationship between the company and the dealer is one of agency.
5. Dacion En Pago (Arts. 1245 and 1934) –
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.
Art. 1934. An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of the contract.
• DEP essentially involves the transfer of ownership of a subject matter.
• What actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of
sale while the debt is considered as the purchase price; that is why the elements
of sale must be present, including a clear agreement that the things offered is
accepted for the extinguishment of the debt.
• Dacion en pago considerations are not in the realm of perfection of contract, but
rather in the stage of consummation, for indeed dacion en pago is by definition
a special mode of payment
• Prior to delivery of the subject matter to constitute the dation in payment, the
agreement does not necessarily constitute a separate contract, but only an
arrangement by which an existing obligation may be extinguished.
• Valid dation in payment, there must be:
(a) Performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against the
third person;
(b) Some difference between the prestation due and that which is given in
substitution (aliud pro alio); and
(c) An agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a presentation
different from that due.
Philippine Lawin Bus Co. v. CA, 374 SCRA 322 (2002)
Facts:
Advance Capital Corporation, a licensed lending investor, extended a loan to
petitioner Philippine Lawin Bus Company of P8,000,000.00 payable within 1
year.
To guarantee payment of the loan, Lawin executed in favor of Advance the
following documents: (1) A Deed of Chattel Mortgage wherein 9 units of buses
were constituted as collaterals: (2) A joint and several UNDERTAKING of
defendant Master Tours and Travel Corporation, signed by Isidro Tan and
Marciano: and (3) A joint and several UNDERTAKING, executed and signed
by Esteban, Isidro, Marciano and Henry, all surnamed Tan.
Out of the P8,000,000.00 loan, P1,800,000.00 was paid. Thus, Lawin was able
to avail an additional loan of P2,000,000.00 for one (1) month.
LAWIN failed to pay the promissory note and the same was renewed.
But LAWIN failed to pay the two promissory notes so that it was granted a loan
re-structuring for two (2) months. Despite the restructuring, LAWIN failed to
pay.
Respondent foreclosed the mortgaged buses and as the sole bidder thereof, the
amount of P2,000,000.00 was accepted by the deputy sheriff conducting the sale
and credited to the account of LAWIN.
Thereafter, identical demand letters were sent to petitioners to pay their
obligation. Despite repeated demands, petitioners failed to pay their
indebtedness which totaled of P16,484,992.42.
Thus, the suit for sum of money, wherein the respondent prays that defendants
solidarily pay plaintiff.
Issue: WoN there was dacion en pago between the parties upon the surrender
or transfer of the mortgaged buses to the respondent.
Held: No, the Court affirms with CA that there was no dacion en pago that
took place between the parties.
Article 1245 of the Civil Code provides that the law on sales shall govern
an agreement of dacion en pago. A contract of sale is perfected at the moment
there is a meeting of the minds of the parties thereto upon the thing which is
the object of the contract and upon the price.
In this case, there was no meeting of the minds between the parties on
whether the loan of the petitioners would be extinguished by dacion en pago.
The receipts show that the two buses were delivered to respondent in order that
it would take custody for the purpose of selling the same. Such an agreement
negates transfer of absolute ownership over the property to respondent, as in a
sale.
Thus, the Court REVERSES and SETS ASIDE the appealed decision.
A transfer of property between debtor and creditor does not automatically
amount to a dacion en pago, since it is essential that the transfer must be
accompanied by a “meeting of the minds between the parties on whether the
loan ... would be extinguished by dacion en pago.”
The legal effects of a dacion en pago come into effect only when both the debtor
and creditor agree to the terms thereof, for consent to dacion is an essential
element. But once the creditor agrees to a dacion, it ought to know, especially
when it is a bank, and must abide by the legal consequence thereof; that the pre-
existing obligation is thereby extinguished.
6. Subscription Contract –
7. Lease (Arts. 1484 and 1485)
ARTICLE 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
ARTICLE 1485. The preceding article shall be applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.
• In a contract of lease, the lessor binds himself to give to another (the lessee)
the enjoyment or use of a thing for a price certain, and for a period which may
be definite or indefinite.
• A conditional sale may be made in the form of a “lease with option to buy” as
a device to circumvent the provisions of the Recto Law governing the sale of
personal property on installments. It may be stipulated in such contract that
the lessee has the option to buy the leased property for a small consideration
at the end of the term of the lease, provided that the rent has been duly paid;
or if the rent throughout the term had been paid, title shall vest in the lessee.
Such contract are really conditional sales and are deemed leases in name only.

II. PARTIES TO A CONTRACT OF SALE (Arts. 1489 and 1492)
A. MINORS, INSANE AND DEMENTED PERSONS, DEAF-MUTES
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contracts.
Art. 1399. When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution except
insofar as he has been benefitted by the thing or price received by him.
1. Necessaries (Arts. 1489 and 290)
Art 1489. All persons who are authorized in this Code to obligate themselves, may
enter into a contract of sale, saving the modifications contained in the following
articles.
Where necessaries are sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor. Necessaries are
those referred to in article 290.
2. Emancipation (Arts. 399 and 1397, Art 234 and 236, Family Code)
Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contract.
B. SALES BY AND BETWEEN SPOUSES
1. Contracts with Third Parties (Arts. 73, 96, and 124, Family Code)
Art. 73. Either spouse may exercise any legitimate profession, occupation, business
or activity without the consent of the other. The latter may object only on valid,
serious, and moral grounds.
In case of disagreement, the court shall decide whether or not:
(1) The objection is proper; and
(2) Benefit has occurred to the family prior to the objection or thereafter. If the
benefit accrued prior to the objection, the resulting obligation shall be enforced
against the separate property of the spouse who has not obtained consent.
The foregoing provisions shall not prejudice the rights of creditors who
acted in good faith.
Art. 96. The administration and enjoyment of the community property shall
belong to both spouses jointly. In case of disagreement, the husband’s decision
shall prevail, subject to recourse to the court by the wife for proper remedy, which
must be availed of within five years from the date of the contract implementing
such decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the common properties, the other spouse may
assume sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other
spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and the third person, and
may be perfected as a binding contract upon the acceptance by the other spouse
or authorization by the court before the offer is withdrawn by either or both
offerors.
Art. 124. The administration and enjoyment of the conjugal partnership shall
belong to both spouses jointly. In case of disagreement, the husband’s decision
shall prevail, subject to recourse to the court by the wife for proper remedy, which
must be availed of within five years from the date of the contract implementing
such decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the other spouse may
assume sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other
spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and the third person, and
may be perfected as a binding contract upon the acceptance by the other spouse
or authorization by the court before the offer is withdrawn by either or both
offerors.
Ravina v. Villa Abrille, G.R. No. 160708, October 16, 2009
FACTS:
In 1982, during the marriage of respondent Mary Ann Pasaol Villa Abrille and
Pedro, Villa Abrille, they acquired a parcel of land in Davao City (Lot 7)
registered in their names. This lot is adjacent to another land (Lot 8), Pedro’s
separate property.
When Pedro had a mistress in 1991 and neglected his family, Mary Ann
sold/mortgaged their movables to support the family and the studies of her
children. Pedro, by himself, offered to sell the house and the two lots to
petitioners Ravina. Mary Ann objected and notified the petitioners of such
objection, but in June 1991, Pedro still sold the house and lots without her
consent. Later, Pedro, with armed members of the CAFGU and in connivance
with the petitioners, surreptitiously transferred all their (Mary Ann+children)
belongings from the house to an apartment. Mary Ann and her children were
also stopped from entering the house.
Mary Ann and her children (respondents) filed a complaint for Annulment of
Sale, Specific Performance, Damages and Attorney’s Fees with
Preliminary Mandatory Injunction against Pedro and the Ravinas. During
trial Pedro claimed that the house was built with his own money.
Petitioners assert that Lot 7 was Pedro’s exclusive property, acquired by him
through barter or exchange. They also claim that Wilfredo Ravina examined the
titles when they bought the property from Pedro.
TC ruled that the sale of the house and the lots 7 & 8 were valid as to the half
of the share of Pedro and void as to the other half of the share of Mary Ann.
CA modified, ruling that the sale of lot 8 is valid, while the sale of lot 7 is void.
CA also ordered Pedro to return the value of the consideration for lot 7 and the
house to Sps Ravina. Respondents were also given the option to exercise their
rights under Art. 450 NCC with respect to the improvements introduced by Sps
Ravina..
ISSUES
(1) Whether the Lot 7 is an exclusive property of Pedro or conjugal property
(2) Whether the sale of Lot 7 was valid considering the absence of Mary Ann’s
consent
(3) Whether the petitioners are buyers in good faith, hence, entitled to
reimbursement of their payment
RULING
1. Conjugal
Lot 7 was acquired in 1982 during Pedro and Mary Ann’s marriage. No evidence
was adduced to show that the property was acquired through exchange or
barter. The presumption of the conjugal nature of the property subsists in the
absence of clear, satisfactory and convincing evidence to overcome said
presumption or to prove that the subject property is exclusively owned by
Pedro. Likewise, the house built on Lot 7 is conjugal property, having been
constructed through the joint efforts of the spouses, who had obtained a loan
from DBP to construct the house.
2.) Sale was VOID
Under Art. 124 of the FC, disposition of a conjugal property is void if done a)
without the consent of both the husband and wife, or b) in case of one spouse’s
inability, the authority of the court. Here, Mary Ann timely filed the action for
annulment of sale within five (5) years from the date of sale and execution of
the deed. However, her action to annul the sale pertains only to the conjugal
house and lot and does not include the lot covered by Lot 8, a property
exclusively belonging to Pedro and which he can dispose of freely without Mary
Ann’s consent.
3.) Buyers in bad faith; no reimbursement
A purchaser in good faith is one who buys the property of another without
notice that some other person has a right to, or interest in, such property and
pays a full and fair price for the same at the time of such purchase, or before he
has notice of the claim or interest of some other person in the property. To
establish his status as a buyer for value in good faith, a person dealing with land
registered in the name of and occupied by the seller need only show that he
relied on the face of the seller’s certificate of title.
For a person dealing with land registered in the name of and occupied by the
seller whose capacity is restricted, such as Arts. 166/173/124 of the FC, to
establish status as a buyer in GF, he must show that he inquired into the latter’s
capacity to sell in order to establish himself as a buyer for value in good faith.
Here, the property is registered in Pedro and Mary Ann’s names. Also,
petitioners were apprised by Mary Ann’s lawyer of her objection to the sale and
yet they still proceeded to purchase the property without Mary Ann’s written
consent. Moreover, the respondents were the ones in actual, visible and public
possession of the property at the time the transaction was being made. Thus,
at the time of sale, petitioners knew that Mary Ann has a right to or interest in
the subject properties and yet they failed to obtain her conformity to the deed
of sale. Hence, petitioners cannot now invoke the protection accorded to
purchasers in good faith.
The Court sustained the CA’s order directing Pedro to return to Sps Ravina the
value of the consideration for Lot 7 and the house thereon. However,
petitioners cannot claim reimbursements for improvements they
introduced after their good faith had ceased. Patrocinia Ravina made
improvements and renovations on the house and lot at the time when the
complaint against them was filed, even during the pendency of the action.
Article 449 of the NCC which provides that ““(h)e who builds, plants or sows
in bad faith on the land of another, loses what is built, planted or sown without
right to indemnity”, is applicable in this case.
The award of damages was also sustained. The manner by which Mary Ann and
her children were removed from the family home deserves condemnation.
“Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due and observe honesty and good
faith.” (Art. 19, NCC)
Aggabao v. Parulan, Jr., 629 SCRA 562 (2010)
FACTS:
Involved in this action are two parcels of land and their improvements in
Parañaque City and registered under the name of Spouses Parulan, who have
been estranged from one another. Real estate broker Atanacio offered the
property to Spouses Aggabao who upon Atanacio’s insistence prevailed upon
them, so that they and Atanacio met with Ma. Elena (Parulan’s wife) at the site
of the property. During their meeting, Spouses Aggabao paid Ma. Elena earnest
money amounting to P20,000 which she acknowledged with a handwritten
receipt. Then and there, they agreed on the terms of how the buyers will pay the
price of the property.
Spouses Aggabao complied with all the terms with regard to the payment of the
properties, but when Ma. Elena already needed to turn over the owner’s
duplicate copies for both lands, she was able to turn over only one (which was
successfully transferred to the name of spouses Aggabao). For the other one,
she said that it is with a relative in HongKong but she promised to deliver it to
the spouses in a week. Needless to say, she failed to do so and by doing their
own verification, the spouses found out that said copy of title was in the hands
of Dionisio’s brother.
The spouses met with Dionisio’s brother, Atty. Parulan, who told them that he
is the one with the power to sell the property. He demanded P800,000 for said
property and gave the spouses several days to decide. When Atty. Parulan did
not hear back from the spouses, he gave them a call, and was then informed
that they have already paid the full amount to Ma. Elena.
Subsequently, Dionisio, through Atty. Parulan, commenced an action praying
for the declaration of the nullity of the deed of absolute sale executed by Ma.
Elena, and the cancellation of the title issued to the petitioners by virtue thereof.
ISSUE: Whether or not the sale of conjugal property made by Ma. Elena, by
presenting a special power of attorney to sell (SPA) purportedly executed by
respondent husband in her favor was validly made to the vendees
RULING/RATIO: No, the Court ruled that the sale of conjugal property
without the consent of the husband was not merely voidable but void; hence, it
could not be ratified. Spouses Aggabao also cannot use the defense that they
are buyers in good faith because they did not exercise the necessary prudence
to inquire into the wife’s authority to sell.
The relevant part of Article 124 of the Family Code provides that: xxx In the
event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole
powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other
spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. xxx
Spouses Aggabao also failed to substantiate their contention that Dionisio,
while holding the administration over the property, had delegated to his brother,
Atty. Parulan, the administration of the property, considering that they did not
present in court the SPA granting to Atty. Parulan the authority for the
administration.
Nonetheless, the Court would like to stress that the power of administration
does not include acts of disposition or encumbrance, which are acts of strict
ownership. As such, an authority to dispose cannot proceed from an authority
to administer, and vice versa, for the two powers may only be exercised by an
agent by following the provisions on agency of the Civil Code (from Article
1876 to Article 1878). Specifically, the apparent authority of Atty. Parulan, being
a special agency, was limited to the sale of the property in question, and did not
include or extend to the power to administer the property.
On the other hand, we agree with Dionisio that the void sale was a continuing
offer from the petitioners and Ma. Elena that Dionisio had the option of
accepting or rejecting before the offer was withdrawn by either or both Ma.
Elena and the petitioners. The last sentence of the second paragraph of Article
124 of the Family Code makes this clear, stating that in the absence of the other
spouse’s consent, the transaction should be construed as a continuing offer on
the part of the consenting spouse and the third person, and may be perfected
as a binding contract upon the acceptance by the other spouse or upon
authorization by the court before the offer is withdrawn by either or both
offerors.
2. Between Spouses (Arts. 133, 1490, 1492)
Art. 133. Every donation between the spouses during the marriage shall be void.
This prohibition does not apply when the donation takes effect after the death of
the donor.
Neither does this prohibition apply to moderate gifts which the spouses
may give each other on the occasion of any family rejoicing.
Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under Art. 191
Art. 1492. The prohibitions in the two preceding articles are applicable to sales in
legal redemption, compromises and renunciations.
Medina v. Collector, 1 SCRA 302
FACTS:
On May 20, 1944, Antonio Medina married Antonia Rodriguez. Petitioner
acquired forest, concessions in the municipalities of San Mariano and Palanan
in the Province of Isabela. The logs cut and removed by the petitioner from his
concessions were sold to different persons in Manila through his agent, Mariano
Osorio.
Antonia engaged in business as a lumber dealer; petitioner sold to her almost all
the logs produced in his San Mariano concession. Mrs. Medina, in turn, sold the
logs bought from her husband through the same agent. The proceeds were,
upon instructions from petitioner, either received by Osorio for petitioner or
deposited by said agent in petitioner's current account with the Philippine
National Bank.
The Collector considered the sales made by Mrs. Medina as the petitioner's
original sales taxable and, therefore, imposed a tax assessment on petitioner,
calling for the payment of P4, 553.54 as deficiency sales taxes and surcharges
from 1949 to 1952.
Petitioner protested the assessment; however, respondent Collector insisted on
his demand.
PETITIONER’S ARGUMENT. There exists an alleged premarital agreement
of complete separation of properties between him and his wife; that the
assessment for the years 1946 to 1952 had already prescribed.
RESPONDENT’S DEFENSE. (a) there was no premarital agreement of
absolute separation of property between the Medina spouse; and (b) assuming
that there was such an agreement, the sales in question made by petitioner to
his wife were fictitious, simulated, and not bona fide.
ISSUE: Can the sales made by the petitioner to his wife be considered as his
original taxable sales?
RULING: NO
Firstly, the circumstantial evidence is against petitioner's claim. It appears that
at the time of the marriage between petitioner and his wife, they neither had any
property nor business of their own, as to have really urged them to enter into
the supposed property agreement.
Secondly, the testimony that the separation of property agreement was recorded
in the Registry of Property three months before the marriage is patently absurd,
since such a prenuptial agreement could not be effective before marriage is
celebrated, and would automatically be cancelled if the union was called off.
Third, despite their insistence on the existence of the ante nuptial contract, the
couple did not act in accordance with its alleged covenants. It was proven that
even during their taxable years; the ownership, usufruct, and administration of
their properties and business were in the husband.
Fourth, although petitioner already knew that the primary reason why the sales
of logs to his wife could not be considered as the original taxable sales was
because of the express prohibition found in Article 1490 of the Civil Code of
sales between spouses married under a community system; yet it was not until
July of 1954 that he alleged, for the first time, the existence of the supposed
property separation agreement.
Contracts violative of the provisions of Article 1490 of the Civil Code are null
and void. Being void transactions, the sales made by the petitioner to his wife
were correctly disregarded by the Collector in his tax assessments that
considered as the taxable sales those made by the wife through the spouses'
common agent, Mariano Osorio. In upholding that stand, the Court below
committed no error.
3. Applicability to Common-Law Spouses (Art. 133)
Calimlim Canullas v. Fortun, 129 SCRA 675 (1984)
FACTS:
• Mercedes and Fernando were married and had 5 children. Fernando inherited
the land upon which their house was built. Fernando left his family to live with
his concubine Corazon.
• He then sold the said lot with the house in favor of Corazon for P2,000.
Corazon, unable to take possession of the house and lot, filed a complaint for
quieting of title. Mercedes objected alleging that the properties pertained to their
conjugal partnership.
ISSUE: W/N the sale to Corazon was valid
RULING: NO.
•The properties pertained to the conjugal partnership of Mercedes and
Fernando, thus the sale is null and void for lack of Mercedes’ consent and for
being contrary to morals and public policy.
• The law generally prohibits spouses from selling or donating properties to
each other; the same prohibitions apply to a couple living in as husband and
wife without the benefit of marriage.
• As public interests dictate, to rule otherwise would put the persons in guilt at
better position than those legally married.
 4. Is in Pari Delicto Doctrine Applicable to Prohibit Recovery?
C. SCENARIOS INVOLVING CONFLICT OF INTEREST DUE TO
TRUST RELATIONSHIPS (Arts. 1491 and 1492)
Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,
and other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession;
(6) Any others specially disqualified by law.
Art. 1492. The prohibitions in the two preceding articles are applicable to sales in
legal redemption, compromises and renunciations.
1. Status of such contracts
Rubias v. Batiller, 51 S 120 (1973)
Facts:
- Francisco Militante claimed that he owned a parcel of land located in
Iloilo. He filed with the CFI of Iloilo an application for the registration
of title of the land. This was opposed by the Director of Lands, the
Director of Forestry, and other oppositors. The case was docked as a
land case, and after trial the court dismissed the application for
registration. Militante appealed to the Court of Appeals.
- Pending that appeal, he sold to Rubias (his son-in-law and a lawyer)
the land.
- The CA rendered a decision, dismissing the application for registration.
- Rubias filed a Forcible Entry and Detainer case against Batiller.
- In that case, the court held that Rubias has no cause of action because
the property in dispute which Rubias allegedly bought from Militante
was the subject matter of a land case, in which case Rubias was the
counsel on record of Militante himself. It thus falls under Article 1491
of the Civil Code. (Hence, this appeal.)
Issue: Whether the sale of the land is prohibited under Article 1491.
Held: YES. Article 1491 says that “The following persons cannot acquire any
purchase, even at a public or judicial auction, either in person or through the
mediation of another…. (5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyesr, with respect to the property and rights
which may be the object of any litigation in which they may take part by virtue
of their profession.” The present case clearly falls under this, especially since the
case was still pending appeal when the sale was made.
Issue: Legal effect of a sale falling under Article 1491?
Held: NULL AND VOID.CANNOT BE RATIFIED.
Manresa considered such prohibited acquisitions (which fell under the
Spanish Civil Code) as merely voidable because the Spanish Code did not
recognize nullity. But our Civil Code does recognize the absolute nullity of
contracts “whose cause, object or purpose is contract to law, morals, good
customs, public order or public policy” or which are “expressly prohibited or
declared void by law” and declares such contracts “inexistent and void from the
beginning.” The nullity of such prohibited contracts is definite and permanent,
and cannot be cured by ratification.
The public interest and public policy remain paramount and do not
permit of compromise or ratification. In this aspect, the permanent
disqualification of public and judicial officers and lawyers grounded on public
policy differs from the first three cases of guardians agents and administrators
(under Art 1491). As to their transactions, it has been opined that they may be
“ratified” by means of and in “the form of a new contract, in which case its
validity shall be determined only by the circumstances at the time of execution
of such new contract.” In those cases, the object which was illegal at the time
of the first contract may have already become lawful at the time of the
ratification or second contract, or the intent, or the service which was
impossible. The ratification or second contract would then be valid from its
execution; however, it does not retroact to the date of the first contract.
Decision affirmed.
2. Guardians, agents and administrators
Phil. Trust Co. v. Roldan, 99 P 39 (1956)
FACTS:
Mariano L Bernardo, a minor, inherited from his father, Marcelo Bernardo 17
parcels of land located in Guiguinto, Bulacan. In view of his minority,
guardianship proceedings were instituted on July 27, 1947, where Socorro
Roland, surviving spouse of Marcelo and step-mother of Mariano, was
appointed as guardian of the latter. Also, Socorro filed a motion asking authority
to sell as guardian the 17 parcels for the sum of P14,700 to his brother-in-law,
Dr. Fidel C. Ramos, the purpose of the sale being allegedly to invest money in
a residential house, which the minor desired to have on Tindalo St., Manila. The
motion was granted.
On August 5, 1947 Socorro, as guardian, then executed the proper deed of sale
in favor of Fidel Ramos and on August 12, 1947, she asked for and obtained
judicial confirmation of the sale. However, on August 13, 1947, Fidel Ramos
executed in favor of Socorro personally, a deed of conveyance covering the
same 17 parcels for the sum of P15,000. And on October 21, 1947 Socorro sold
4 out of the 17 parcels to Emilio Cruz for P3,000, reserving herself the right to
repurchase.
On August 10, 1948, petitioner Phil. Trust Co. replaced Socorro as guardian.
Petitioner filed a complaint to annul two contracts regarding the 17 parcels of
land: a) the sale thereof by Socorro, as guardian, to Fidel Ramos; and b) sale
thereof by Fidel Ramos to Socorro personally. Petitioner contends that the step-
mother in effect, sold to herself, the properties of her ward thus should be
annulled as it violates Art. 1459 of the Civil Code prohibiting the guardian from
purchasing “either in person or through the mediation of another” the property
of her ward. As to the third conveyance, that Socorro had acquired no valid title
to convey to Cruz.
The trial court held that Art 1459 was not controlling as there was no proof that
Ramos was a mere intermediary or that the latter agreed with Socorro to but the
parcels of land for her benefit. The Court of Appeals affirmed the judgment,
adding that the minor new the particulars of, and approved the transactions,
and that ‘only clear and positive evidence of fraud and bad faith, and not mere
insinuations and interferences will overcome the presumptions that a sale was
concluded in all good faith for value. Hence, this petition.
ISSUE: Whether the two contracts of sale made by Socorro was valid.
HELD: No. The court held that even without proof that Socorro had connived
with Fidel Ramos. Remembering the general doctrine that guardianship is a trust
of the highest order, and the trustee cannot be allowed to have any inducement
to neglect his ward's interest and in line with the court's suspicion whenever the
guardian acquires the ward's property we have no hesitation to declare that in
this case, in the eyes of the law, Socorro Roldan took by purchase her ward's
parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.
The temptation which naturally besets a guardian so circumstanced, necessitates
the annulment of the transaction, even if no actual collusion is proved (so hard
to prove) between such guardian and the intermediate purchaser. This would
uphold a sound principle of equity and justice.
From both the legal and equitable standpoints these three sales should not be
sustained: the first two for violation of article 1459 of the Civil Code; and the
third because Socorro Roldan
could pass no title to Emilio Cruz. The annulment carries with it (Article 1303
Civil Code) the obligation of Socorro Roldan to return the 17 parcels together
with their fruits and the duty of the minor, through his guardian to repay
P14,700 with legal interest.
3. Attorneys
Fabillo v. lAC, 195 S 28 (1991).
FACTS:
Florencio Fabillo contracted the services of Atty. Murillo to revive a lost case
over his inheritance from his deceased sister Justinia. He sought to acquire the
San Salvador and Pugahanay Properties that his sister left behind, against the
latter’s husband. They entered into a contract where a contingent fee in favor
of Atty. Murillo in case the case was won was agreed upon. The fee was for 40%
of the value of whatever benefit Florencio may derive from the suit – such as if
the properties were sold, rented, or mortgaged. It was vague, however, regarding
the fee in case Florencio or his heirs decide to occupy the house – allowing Atty.
Murillo the option to occupy or lease 40% of the said house and lot. A
compromise agreement was entered into where Florencio acquired both the San
Salvador and Pugahanay Properties. Atty. Murillo installed a tenant in the
Pugahanay Property; later on Florencio claimed exclusive rights over the
properties invoking Art. 1491 of the Civil Code. Florencio and Atty. Murillo
both died and were succeeded by their respective heirs.
ISSUE: W/N contingent fees agreed upon are valid
HELD:
Contingent fees are not contemplated by the prohibition in Art. 1491
disallowing lawyers to purchase properties of their clients under litigation. The
said prohibition applies only during the pendency of the litigation. Payment of
the contingent fee is made after the litigation, and is thus not covered by the
prohibition. For as long as there is no fraud or undue influence, or as long as
the fees are not exorbitant, the same is valid and enforceable. It is even
recognized by the Cannons of Professional Ethics.
However, considering that the contract is vague on the matter of division of the
shares if Florencio occupies the property; the ambiguity is to be construed
against Atty. Murillo being the one who drafted the contract and being a lawyer
more knowledgeable about the law. The Court thus, invoking the time-honored
principle that a lawyer shall uphold the dignity of the legal profession, ordered
only a contingent fee of P 3,000.00 as reasonable attorney’s fees.
4. Judges
D. SALES BY ADMINISTRATORS/EXECUTORS
Lee v. RTC, G.R. No. 146006, February 23, 2004
FACTS:
• Dr. Juvencio P. Ortañez incorporated the Philippine International Life
Insurance Company, Inc. on 1956. At the time of the company’s
incorporation, Dr. Ortañez owned ninety percent (90%) of the subscribed
capital stock.
• On July 21, 1980, Dr. Ortañez died. He left behind a wife (Juliana Salgado
Ortañez), three legitimate children (Rafael, Jose and Antonio Ortañez) and
five illegitimate children by Ligaya Novicio (herein private respondent Ma.
Divina Ortañez-Enderes and her siblings Jose, Romeo, Enrico Manuel and
Cesar, all surnamed Ortañez).
• Special administrators Rafael and Jose Ortañez submitted an inventory of
the estate of their father which included 2,029 shares of stock in Philippine
International Life Insurance Company, representing 50.725% of the
company’s outstanding capital stock.
• Juliana (wife) and Jose (legit child) sold 1,014 and 1,011 shares respectively
to FLAG.
• The legal family entered into an extrajudicial settlement of the estate of
Dr. Juvencio Ortañez, partitioning the estate among themselves. This was
the basis of the number of shares separately sold by them.
• The lower court declared the shares of stock as null and void. CA affirmed.
• Meanwhile, the FLAG-controlled board of directors, increased the
authorized capital stock of Philinterlife, diluting in the process the
50.725% controlling interest Dr. Juvencio Ortañez, in the insurance
company. Enderes filed an action at the SEC. The SEC hearing officer
dismissed the case acknowledging the jurisdiction of the civil courts.
• Jose Lee and Alma Aggabao as president and secretary of Philinterlife
ignored the orders nullifying the sales of the shares of stock

ISSUE: W/N the sales of stock of PhilInterlife are void – Yes

HELD:
• Our jurisprudence is clear that
o (1) any disposition of estate property by an administrator or
prospective heir pending final adjudication requires court approval
and
o (2) any unauthorized disposition of estate property can be annulled
by the probate court, there being no need for a separate action to
annul the unauthorized disposition.
• An heir can sell his right, interest, or participation in the property under
administration under NCC 533 which provides that possession of
hereditary property is deemed transmitted to the heir without interruption
from the moment of death of the decedent. However, an heir can only
alienate such portion of the estate that may be allotted to him in the
division of the estate by the probate or intestate court after final
adjudication, that is, after all debtors shall have been paid or the devisees
or legatees shall have been given their shares. This means that an heir may
only sell his ideal or undivided share in the estate, not any specific property
therein.
• It goes without saying that the increase in Philinterlife’s authorized capital
stock, approved on the vote of petitioners’ non-existent shareholdings and
obviously calculated to make it difficult for Dr. Ortañez’s estate to
reassume its controlling interest in Philinterlife, was likewise void ab initio.
 III. SUBJECT MATTER OF SALE (Arts. 1459 to 1465)
Art. 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
Art. 1460. A thing is determinate when it is particularly designated or physically
segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate without
the necessity of a new or further agreement between the parties.
Art. 1461. Things having a potential existence may be the object of the contract of
sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
Art. 1462. The goods which form the subject of a contract of sale may be either
existing goods, owned or possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of the contract of sale, in this
Title called “future goods.”
Art. 1463. The sole owner of a thing may sell an undivided interest therein.
Art. 1464. In the case of fungible goods, there may be a sale of an undivided share
of a specific mass, though the seller purports to sell and the buyer to buy a definite
number, weight or measure of the goods in the mass, and though the number,
weight or measure of the goods in the mass is undetermined. By such a sale the
buyer becomes owner in common of such a share of the mass as the number,
weight or measure of the mass. If the mass contains less than the number, weight
or measure bought, the buyer becomes the owner of the whole mass and the seller
is bound to make good the deficiency from goods of the same kind and quality,
unless a contrary intent appears.
Art. 1465. Things subject to a resolutory condition may be the object of the
contract of sale.
A. MUST BE EXISTING, FUTURE OR CONTIGENT (Arts. 1347, 1348
and 1462)
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible
may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
1. The thing must be capable of existence
a. Emptio Rei Speratae (1461 and 1347)
Art. 1461. Things having a potential existence may be the object of the contract of
sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
b. Emptio Spei (1461)
c. Subject to resolutory condition (1465)
Quijada v. CA, GR. No. 126444, December 4, 1988.
FACTS:
• On April 5, 1956, Trinidad Quijada and her sisters executed a deed of
conditional donation in favor of the Municipality of Talacogon, the condition
being that the land shall be used exclusively for the construction of a provincial
high school.
• Trinidad remained in possession of the land. On July 29, 1962, Trinidad sold
the land to respondent Regalado Mondejar.
• In 1980, the heirs of Trinidad, herein petitioners, filed a complaint for forcible
entry against the respondent.
• In 1987, the proposed campus did not materialize, and the Sangguniang Bayan
enacted a resolution donating back the land to the donor.
• In the meantime, respondent Mondejar conveyed portions of the land to the
other respondents. On July 5, 1988, petitioners filed a complaint for quieting of
title, recovery of possession and ownership of the land.
ISSUE: W/N the donation was subjected to a resolutory condition
HELD: We affirm the decision of the respondent Court.
• The donation by Trinidad Quijada and her brother and sisters was subject to
the condition that the donated property shall be "used solely and exclusively as
a part of the campus of the proposed Provincial High School in Talacogon."
o The donation further provides that should "the proposed Provincial High
School be discontinued or if the same shall be opened but for some reason or
another, the same may in the future be closed" the donated property shall
automatically revert to the donor.
o Such condition, not being contrary to law, morals, good customs, public order
or public policy was validly imposed in the donation.
• When the Municipality's acceptance of the donation was made known to the
donor, the former became the new owner of the donated property — donation
being a mode of acquiring and transmitting ownership — notwithstanding the
condition imposed by the donee. The donation is perfected once the acceptance
by the donee is made known to the donor. According, ownership is immediately
transferred to the latter and that ownership will only revert to the donor if the
resolutory condition is not fulfilled.
• In this case, that resolutory condition is the construction of the school.
o It has been ruled that when a person donates land to another on the condition
that the latter would build upon the land a school, the condition imposed is not
a condition precedent or a suspensive condition but a resolutory one.
o Thus, at the time of the sales made in 1962 towards 1968, the alleged seller
(Trinidad) could not have sold the lots since she had earlier transferred
ownership thereof by virtue of the deed of donation. So long as the resolutory
condition subsists and is capable of fulfillment, the donation remains effective
and the donee continues to be the owner subject only to the rights of the donor
or his successors-in-interest under the deed of donation. Since no period was
imposed by the donor on when must the donee comply with the condition, the
latter remains the owner so long as he has tried to comply with the condition
within a reasonable period.
o Such period, however, became irrelevant herein when the donee-Municipality
manifested through a resolution that it cannot comply with the condition of
building a school and the same was made known to the donor. Only then —
when the non-fulfillment of the resolutory condition was brought to the donor's
knowledge — that ownership of the donated property reverted to the donor as
provided in the automatic reversion clause of the deed of donation.
• The donor may have an inchoate interest in the donated property during the
time that ownership of the land has not reverted to her.
o Such inchoate interest may be the subject of contracts including a contract of
sale.
o In this case, however, what the donor sold was the land itself which she no
longer owns.
o It would have been different if the donor-seller sold her interests over the
property under the deed of donation which is subject to the possibility of
reversion of ownership arising from the non-fulfillment of the resolutory
condition.
The donor may have an inchoate interest in the donated property during the
time that ownership of the land has not reverted to her. Such inchoate interest
may be the subject of contracts including a contract of sale. In this case,
however, what the donor sold was the land itself which she no longer owns. It
would have been different if the donor-seller sold her interests over the property
under the deed of donation which is subject to the possibility of reversion of
ownership arising from the non-fulfillment of the resolutory condition.
Sale, being a consensual contract, is perfected by mere consent, which is
manifested the moment there is a meeting of the minds as to the offer and
acceptance thereof on three (3) elements: subject matter, price and terms of
payment of the price. Ownership by the seller on the thing sold at the time of
the perfection of the contract of sale is not an element for its perfection. What
the law requires is that the seller has the right to transfer ownership at the time
the thing sold is delivered. Perfection per se does not transfer ownership which
occurs upon the actual or constructive delivery of the thing sold. A perfected
contract of sale cannot be challenged on the ground of non-ownership on the
part of the seller at the time of its perfection; hence, the sale is still valid.
The consummation, however, of the perfected contract is another matter. It
occurs upon the constructive or actual delivery of the subject matter to the
buyer when the seller or her successors-in-interest subsequently acquires
 ownership thereof. Such circumstance happened in this case when petitioners
who are Trinidad Quijada's heirs and successors-in-interest became the owners
of the subject property upon the reversion of the ownership of the land to them.
Consequently, ownership is transferred to respondent Mondejar and those who
claim their right from him. Article 1434 of the New Civil Code supports the
ruling that the seller's "title passes by operation of law to the buyer." This rule
applies not only when the subject matter of the contract of sale is goods, but
also to other kinds of property, including real property.
2. Seller’s obligation to transfer ownership at the time of delivery
(Arts. 1459, 1505, 1434 and 1462)
Art. 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
Art. 1462. The goods which form the subject of a contract of sale may be either
existing goods, owned or possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of the contract of sale, in this
Title called “future goods.”
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority or with
the consent of the owner, the buyer acquires no better title to the goods than the
seller had, unless the owner of the goods is by his conduct precluded from denying
the seller’s authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors’ acts, recording laws, or any other provision of
law enabling the apparent owner of goods to dispose of them as if he were the true
owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the
order of a court of competent jurisdiction;
(3) Purchases made in a merchant’s store, or in fairs, or markets, in accordance
with the Code of Commerce and special laws.
Art. 1434. When a person who is not the owner of a thing sells or alienates and
delivers it, and later the seller or grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.
Cahayag v. Commercial Credit Corporation, G.R. No. 168078, January 13,
2016.
FACTS:
Dulos Realty entered into several and separate Contracts to Sell with Cahayag,
Rivera, Baldoza, and Escalona over lots that were mortgaged to CCC. Dulos
defaulted in the payment of mortgage loan, prompting CCC to initiate extrajudicial
foreclosure proceedings. An auction sale was held, with CCC as the highest bidder.
A Certificate of Sale was issued in favor of CCC. The TCTs under Dulos were
cancelled and new TCTs were issued to respondent Qua. Qua filed ejectment suits
individually against Dulos, Cahayag, Escalona and Rivera. The MTC then issued
writs of execution against them, including Baldoza. Petitioners claim that they were
owners of the lots by virtue of Contracts of Sale to them, and that the Real Estate
Mortgage between Dulos and CCC did not include the houses, but merely the lands,
the inclusion of the houses in CCC’s sale to Qua was allegedly illegal. Held: A plain
reading of the Real Estate Mortgage reveals that it covers the housing units under
other improvements existing at that time or which may be placed after. Secondly,
there were not contracts to sell nor deed of absolute sale to the petitioners when
the mortgage was executed. They were all executed after. They could not be an
impediment at all to the mortgage. Petitioners equate a contract to sell to a contract
of sale, in which the vendor loses ownership over the property upon its deliver. But
a contract to sell, standing alone, does not transfer ownership. The seller under a
contract to sell does not have the obligation to transfer ownership to the buyer
unless the buyer fulfills the condition of full payment of the purchase price. There
is no evidence to show that any of the petitioners were able to effect full payment
of the purchase price, which could have at least given rise to the obligation to
transfer ownership. Thus, petitioners were consequently bound to the mortgage.
B. MUST BE LICIT (Arts. 1347, 1459 and 1575)
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible
may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract.
Art. 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
Art. 1575. The sale of animals suffering from contagious diseases shall be void.
C. MUST BE DETERMINATE OR DETERMINABLE (1460)
Art. 1460. A thing is determinate when it is particularly designated or physically
segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determined without the
necessity of a new or further agreement between the parties.
Melliza v. City of llo-ilo, 23 S 477 (1968)
FACTS:
• Meliza owned Lot 1214, 9,000 sqm of which she donated to the Mun. of Iloilo
for the use of the site of the Mun. Hall.
• However, the donation was revoked because it was inadequate to meet the
requirements of the “Arellano Plan.”
• Lot 1214 was later divided into 4 lots. Meliza then sold Lots C and D to the
Municipality; Lot B was not mentioned in the sale.
• However, the contract stipulated that the area to be sold to the Municipality
would include such areas needed for the construction of the City Hall according
the Arellano Plan.
• She then sold the remaining portions of the lots to Villanueva, who then sold
the same to Pio.
• The sale was for such lots not included in the sale to the Mun. of Iloilo. The
City of Iloilo, assuming that Lot B has been sold in its favor pursuant to the
Arellano Plan, then donated Lot B to UP.
• Pio objected and sought to recover the lots stating that Lot B was not included
in the initial sale made by Meliza to the Municipality—and that the subject
matter of sale should be a determinate thing.
ISSUE: W/N there was a determinate/determinable subject matter
HELD: Yes
• The requirement for the subject matter to be determinate is satisfied in this
case.
• Simple reference to the “Arellano Plan” would indicate that it could determine
what portions of the contiguous land (lot B) were needed for the construction
of the City Hall.
• There was no need for a further agreement to establish the lots covered by the
sale; thus, the sale is valid.
• Besides, the portions of Lot B covered by the sale were practically at the heart
of the City Hall site.
Heirs of San Andres v. Rodriguez, 332 S 769 (2000);
FACTS:
Juan Andres was the owner of the lot situated in Liboton, Naga city. The sale
was evidenced by a deed of sale. Upon the death of Juan Andres, Ramon San
Andres was appointed as administrator of the estate, and hired geodetic
engineer. Jose Panero prepared a consolidated plan of the estate and also
prepared a sketch plan of the lot sold to respondent. It was found out that
respondent had enlarged the area which he purchased from Juan. The
administrator sent a letter to the respondent to vacate the said portion in which
the latter refused to do.
Respondent alleged that apart from the original lot, which had been sold to him,
the latter likewise sold to him the following day the remaining portion of the
lot. He alleged that the payment for such would be affected in 5 years from the
execution of the formal deed of sale after a survey is conducted. He also alleged
that under the consent of Juan, he took possession of the same and introduced
improvements thereon.
Respondent deposited in court the balance of the purchase price amounting to
P7,035.00 for the aforesaid 509-square meter lot.
On September 20, 1994, the trial court rendered judgment in favor of petitioner.
It ruled that there was no contract of sale to speak of for lack of a valid object
because there was no sufficient indication to identify the property subject of the
sale, hence, the need to execute a new contract.
Respondent appealed to the Court of Appeals, which on April 21, 1998
rendered a decision reversing the decision of the trial court. The appellate court
held that the object of the contract was determinable, and that there was a
conditional sale with the balance of the purchase price payable within five years
from the execution of the deed of sale.
ISSUE: W/N there was a valid sale
HELD: Civil Code provides that by the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
As thus defined, the essential elements of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and,
c) Price certain in money or its equivalent. 12
As shown in the receipt, dated September 29, 1964, the late Juan San Andres
received P500.00 from respondent as "advance payment for the residential lot
adjoining his previously paid lot on three sides excepting on the frontage; the
agreed purchase price was P15.00 per square meter; and the full amount of the
purchase price was to be based on the results of a survey and would be due and
payable in five (5) years from the execution of a deed of sale.
Petitioner's contention is without merit. There is no dispute that respondent
purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This
portion is located in the middle of Lot 1914-B-2, which has a total area of 854
square meters, and is clearly what was referred to in the receipt as the
"previously paid lot." Since the lot subsequently sold to respondent is said to
adjoin the "previously paid lot" on three sides thereof, the subject lot is capable
of being determined without the need of any new contract. The fact that the
exact area of these adjoining residential lots is subject to the result of a survey
does not detract from the fact that they are determinate or determinable. As the
Court of Appeals explained: 15
Concomitantly, the object of the sale is certain and determinate. Under Article
1460 of the New Civil Code, a thing sold is determinate if at the time the
contract is entered into, the thing is capable of being determinate without
necessity of a new or further agreement between the parties. Here, this
definition finds realization.
Thus, all of the essential elements of a contract of sale are present, i.e., that there
was a meeting of the minds between the parties, by virtue of which the late Juan
San Andres undertook to transfer ownership of and to deliver a determinate
thing for a price certain in money. As Art. 1475 of the Civil Code provides:
The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. . . .That
the contract of sale is perfected was confirmed by the former administrator of
the estates, Ramon San Andres, who wrote a letter to respondent on March 30,
1966 asking for P300.00 as partial payment for the subject lot. As the Court of
Appeals observed:
Without any doubt, the receipt profoundly speaks of a meeting of the mind
between San Andres and Rodriguez for the sale. Evidently, this is a perfected
contract of sale on a deferred payment of the purchase price. All the pre-
requisite elements for a valid purchase transaction are present.
There is a need, however, to clarify what the Court of Appeals said is a
conditional contract of sale. Apparently, the appellate court considered as a
"condition" the stipulation of the parties that the full consideration, based on a
survey of the lot, would be due and payable within five (5) years from the
execution of a formal deed of sale. It is evident from the stipulations in the
receipt that the vendor Juan San Andres sold the residential lot in question to
respondent and undertook to transfer the ownership thereof to respondent
without any qualification, reservation or condition.
A deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until
full payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period.
Applying these principles to this case, it cannot be gainsaid that the contract of
 sale between the parties is absolute, not conditional. There is no reservation of
ownership nor a stipulation providing for a unilateral rescission by either party.
In fact, the sale was consummated upon the delivery of the lot to respondent.
20 Thus, Art. 1477 provides that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.
The stipulation that the "payment of the full consideration based on a survey
shall be due and payable in five (5) years from the execution of a formal deed
of sale" is not a condition which affects the efficacy of the contract of sale. It
merely provides the manner by which the full consideration is to be computed
and the time within which the same is to be paid. But it does not affect in any
manner the effectivity of the contract. Consequently, the contention that the
absence of a formal deed of sale stipulated in the receipt prevents the happening
of a sale has no merit.
The claim of petitioners that the price of P7,035.00 is iniquitous is untenable.
The amount is based on the agreement of the parties as evidenced by the receipt
(Exh. 2). Time and again, we have stressed the rule that a contract is the law
between the parties, and courts have no choice but to enforce such contract so
long as they are not contrary to law, morals, good customs or public policy.
Otherwise, court would be interfering with the freedom of contract of the
parties. Simply put, courts cannot stipulate for the parties nor amend the latter's
agreement, for to do so would be to alter the real intentions of the contracting
parties when the contrary function of courts is to give force and effect to the
intentions of the parties.
The decision of the Court of Appeals is AFFIRMED with the modification that
respondent is ORDERED to reimburse petitioners for the expenses of the
survey.
1. Generic things as objects of sale (Arts. 1246 and 1409[6]) –
Art. 1246. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither can the debtor deliver a thing
of inferior quality. The purpose of the obligation and other circumstances shall
be taken into consideration.
Art. 1409 (6). The following contracts are inexistent and void from the
beginning:
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained.
These contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived.
Yu Tek & co., v. Gonzales, 29 Phil. 384 (1915)
FACTS:
• Gonzales received P3,000 from Yu Tek and obligated himself in favor of the
latter to deliver 600 piculs of sugar of the 1st and 2nd grade within 3 months.
• He failed to deliver the sugar and refused to return the money—thus Yu Tek
sued him. Gonzales, in seeking to evade liability, invokes fortuitous event,
alleging the total failure of his crop.
ISSUE: W/N there was a perfected contract of sale
HELD: NO.
• The subject matter was not yet determinate.
• The sugar agreed upon has yet to be segregated from all other articles. That
being the case, there was merely an executory agreement—a promise of sale,
and not a contract of sale itself.
• Moreover, there was no stipulation that the sugar was to be derived from his
crop; he was at liberty to get it from whatever source he could find.
• The obligation he incurred was for the delivery of the generic thing. Thus, he
cannot invoke force majeure under the maxim genus never perishes.
• His obligation to deliver the sugar is not extinguished.
• Yu Tek is thus entitled to rescind the contract and recover the money in
addition to the stipulated P1,200 as indemnity for losses.

• DD: This rule no longer holds true. Generic things may now be the subject
matter of a contract of sale provided that they have the quality of being
DETERMINABLE at the perfection of the contract
 2. Undivided Interest (1463, 1464)
Art. 1463. The sole owner of a thing may sell an undivided interest therein.
Art. 1464. In the case of fungible goods, there may be a sale of an undivided share
of a specific mass, though the seller purports to sell and the buyer to buy a definite
number, weight or measure of the goods in the mass, and though the number,
weight or measure of the goods in the mass is undetermined. By such a sale the
buyer becomes owner in common of such a share of the mass as the number,
weight or measure of the mass. If the mass contains less than the number, weight
or measure bought, the buyer becomes the owner of the whole mass and the seller
is bound to make good the deficiency from goods of the same kind and quality,
unless a contrary intent appears.
3. Undivided Share in a mass of fungible goods may be object of
sale. (Art. 1464)
Art. 1464. In the case of fungible goods, there may be a sale of an undivided share
of a specific mass, though the seller purports to sell and the buyer to buy a definite
number, weight or measure of the goods in the mass, and though the number,
weight or measure of the goods in the mass is undetermined. By such a sale the
buyer becomes owner in common of such a share of the mass as the number,
weight or measure bought bears to the number, weight or measure of the mass. If
the mass contains less than the number, weight or measure bought, the buyer
becomes the owner of the whole mass and the seller is bound to make good the
deficiency from goods of the same kind and quality, unless a contrary intent
appears.
D. WHETHER QUANTITY OF OBJECT IS ESSENTIAL FOR
PERFECTION (Art. 1349) –
Art. 1349. The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to the existence of
the contract, provided it is possible to determine the same, without the need of a
new contract between the parties.
National Grains Authority and William Cabal v. IAC and Leon Soriano,
171 SCRA 131 (1989);
FACTS:
Petitioner National Grains Authority (now NFA) is a government agency
created under PD 4. One of its incidental functions is the buying of palay
grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano offered to sell
palay grains to the NFA, through William Cabal, the Provincial
Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the
documents required by the NFA for pre-qualifying as a seller. Private
respondent Soriano's documents were processed and accordingly, he
was given a maximum quota of 2,640 cavans of palay that he may sell
to the NFA.
In the afternoon of August 23, 1979 and on the following day, August
24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during
these two days were not rebagged, classified and weighed. When Soriano
demanded payment of the 630 cavans of palay, he was informed that its
payment will be held in abeyance since Mr. Cabal was still investigating on an
information he received that Soriano was not a bona fide farmer. On August
28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA
warehouse the 630 cavans Soriano delivered stating that NFA cannot legally
accept the said delivery on the basis of the subsequent certification of the BAEX
technician, Napoleon Callangan that Soriano is not a bona fide farmer.
Petitioner contended that when the 630 cavans of palay were brought
by Soriano to the Carig warehouse of NFA they were only offered for sale. Since
the same were not rebagged, classified and weighed in accordance with the palay
procurement program of NFA, there was no acceptance of the offer which, to
petitioners' mind is a clear case of solicitation or an unaccepted offer to sell.
On September 30, 1982, the trial court rendered judgment ordering
petitioner National Food Authority, its officer and agents to pay respondent
Soriano.
Petitioners' appealed the trial court's decision to the Intermediate
Appellate Court. The IAC affirmed the decision of the lower court.
ISSUE: W/N there is a contract of sale – Yes
HELD: Article 1458 of the Civil Code of the Philippines defines sale as “a
contract whereby one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay
therefore a price certain in money or its equivalent.”
Article 147 of NCC provides that “the contract of sale is perfected at
the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.”
The acceptance referred to which determines consent is the acceptance
of the offer of one party by the other and not of the goods delivered as
contended by petitioners.
The reason why NFA initially refused acceptance of the 630 cavans of
palay delivered by Soriano is that it (NFA) cannot legally accept the said delivery
because Soriano is allegedly not a bona fide farmer. The trial court and the
appellate court found that Soriano was a bona fide farmer and therefore, he was
qualified to sell palay grains to NFA.
The fact that the exact number of cavans of palay to be delivered has
not been determined does not affect the perfection of the contract. Article 1349
of the New Civil Code provides: ". . .. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided
it is possible to determine the same, without the need of a new contract between
the parties." In this case, there was no need for NFA and Soriano to enter into
a new contract to determine the exact number of cavans of palay to be sold.
Soriano can deliver so much of his produce as long as it does not exceed 2,640
cavans.
Both courts likewise agree that NFA's refusal to accept was without
just cause. ACCORDINGLY, the instant petition for review is DISMISSED.
Johannes Schuback & Sons Phil. Trading Corp. v. Court of Appeals, 227
SCRA 719 (1993)
FACTS: Sometime in 1981, the defendant established a contract with plaintiff
through the Philippine Consulate General in Hamburg, West Germany, because
he wanted to purchase MAN bus spare parts from Germany. Plaintiff
communicated with its trading partner, JOHANNES SCHUBACK & SONS
PHILIPPINE TRADING CORPORATION (Schuback Hamburg) regarding
the spare parts defendant wanted to order. Defendant submitted to plaintiff a
list of the parts he wanted to purchase with specific part numbers and
description. Plaintiff sent to defendant a letter dated 25 November, 1981,
enclosing its offer on the items listed by defendant.
Plaintiff submitted its formal offer containing the item number,
quantity, part number, description, unit price and total to defendant. On
December, 24, 1981, defendant informed plaintiff of his desire to avail of the
prices of the parts at that time.
Plaintiff immediately ordered the items needed by defendant from
Schuback Hamburg to enable defendant to avail of the old prices. Schuback
Hamburg in turn ordered the items from NDK, a supplier of MAN spare parts
in West Germany. On January 4, 1982, Schuback Hamburg sent plaintiff a
proforma invoice to be used by defendant in applying for a letter of credit. Said
invoice required that the letter of credit be opened in favor of Schuback
Hamburg.
On October 18, 1982, Plaintiff again reminded defendant of his order
and advised that the case may be endorsed to its lawyers. Defendant replied that
he did not make any valid Purchase Order and that there was no definite
contract between him and plaintiff. Plaintiff sent a rejoinder explaining that
there is a valid Purchase Order and suggesting that defendant either proceed
with the order and open a letter of credit or cancel the order and pay the
cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its
lawyers.
Consequently, petitioner filed a complaint for recovery of actual or
compensatory damages, unearned profits, interest, attorney’s fees and costs
against private respondent.
In its decision dated June 13, 1988, the trial court ruled in favor of
petitioner by ordering private respondent to pay petitioner, among others, actual
compensatory damages in the amount of DM 51,917.81, unearned profits in the
amount of DM 14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals.
On February 18, 1992, the appellate court reversed the decision of the trial court
and dismissed the complaint of petitioner. It ruled that there was no perfection
of contract since there was no meeting of the minds as to the price between the
last week of December 1981 and the first week of January 1982.
ISSUE: W/N a contract of sale has been perfected between the parties
HELD: The Supreme Court reversed the decision of the Court of Appeals and
reinstated the decision of the trial court. It bears emphasizing that a “contract
of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.”
 Article 1319 of the Civil Code states: “Consent is manifested by the
meeting of the offer and acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter offer.” The facts presented to us
indicate that consent on both sides has been manifested.
The offer by petitioner was manifested on December 17, 1981 when
petitioner submitted its proposal containing the item number, quantity, part
number, description, the unit price and total to private respondent. On
December 24, 1981, private respondent informed petitioner of his desire to avail
of the prices of the parts at that time and simultaneously enclosed its Purchase
Order No. 0l01 dated December 14, 1981. At this stage, a meeting of the minds
between vendor and vendee has occurred, the object of the contract: being the
spare parts and the consideration, the price stated in petitioner’s offer dated
December 17, 1981 and accepted by the respondent on December 24,1981.
When petitioner forwarded its purchase order to NDK, the price was
still pegged at the old one. Thus, the pronouncement of the Court Appeals that
there as no confirmed price on or about the last week of December 1981 and/or
the first week of January 1982 was erroneous.
On the part of the buyer, the situation reveals that private respondent
failed to open an irrevocable letter of credit without recourse in favor of
Johannes Schuback of Hamburg, Germany. This omission, however, does not
prevent the perfection of the contract between the parties.
The opening of a letter of credit in favor of a vendor is only a mode of
payment. It is not among the essential requirements of a contract of sale
enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of
which will prevent the perfection of the contract from taking place.
To adopt the Court of Appeals’ ruling that the contract of sale was
dependent on the opening of a letter of credit would be untenable from a
pragmatic point of view because private respondent would not be able to avail
of the old prices which were open to him only for a limited period of time.
WHEREFORE, the petition is GRANTED and the decision of the
trial court dated June 13, 1988 is REINSTATED with modification.
E. LEGALITY OF SUBJECT MATTER(Arts. 1409, 1458, 1461, 1462 and
1575)
Art. 1409. The following contracts are inexistent and void from the beginning:
1. Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained;
7. Those expressly prohibited or declared void by law.
8. These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Art. 1461. Things having a potential existence may be the object of the contract of
sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence
The sale of a vain hope or expectancy is void.
Art. 1462. The goods which form the subject of a contract of sale may be either
existing goods, owned or possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of the contract of sale, in this
Title called “future goods.”
There may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency which may or may not happen.
Art. 1575. The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for
which they are acquired has been stated in the contract and they are found to be
unfit therefor.
1. Special laws
2. Absolutely simulated sale
 IV. PRICE
A. Meaning of Price
Hernandez-Nievera v. Hernandez, 643 SCRA 646 (2011)
FACTS: Project Movers Realty and Dev’t Corp. (PMRDC) entered into a
Memorandum of Agreement (MOA) whereby it was given the option to buy
pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina),
Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio).
Later on, PMRDC saw the need to convey additional properties to and
augment the value of its Asset Pool. Thus, it entered with LBP and Demetrio –
the latter purportedly acting under authority of the same special power of
attorney as in the MOA – into a Deed of Assignment and Conveyance (DAC)
whereby some of the lands were transferred and assigned to the Asset Pool in
exchange for a number of shares of stock which supposedly had already been
issued in the name and in favor of Demetrio. This essentially dispensed with the
stipulated obligation of PMRDC in the MOA to pay option money should it
opt to buy the properties.
PMRDC admittedly did not avail of its option to purchase the lands in
Area II in the twelve months that passed after the execution of the MOA.
Petitioners demanded the return of the corresponding TCTs. PMRDC stated
that the TCTs could no longer be delivered back to petitioners as the covered
properties had already been conveyed and assigned to the Asset Pool pursuant
to the DAC.
Petitioners explained that Demetrio could not have entered into the
DAC as his power of attorney was limited only to selling or mortgaging the
properties and not conveying the same to the Asset Pool. Also, they asserted
that the fraudulent execution of the DAC was made possible through the
connivance of all the respondents.
Petitioners instituted an action before the RTC for the rescission of
the MOA, as well as for the declaration of nullity of the DAC. The RTC declared
the MOA to be an option contract and ordered its rescission.
However, the Court of Appeals reversed the RTC decision, saying that
the allegation of forgery of Demetrio’s signature in the DAC was not established
by the evidence and, hence, following the legal presumption of regularity in the
execution of notarized deeds, it upheld the validity of the DAC.
ISSUE: Whether or not the CA erred in declining to rescind the MOA and
declare the DAC null and void
HELD: Petition lacks merit.
CIVIL LAW: Forgery, agency
With the execution of the DAC, PMRDC has already entered into the exercise
of its option except that its obligation to deliver the option money has, by
subsequent agreement embodied in the DAC, been substituted instead by the
obligation to issue participation certificates in Demetrio’s name
Forgery cannot be presumed from a mere allegation but rather must
be proved by clear, positive and convincing evidence by the party alleging the
same. The burden to prove the allegation of forgery in this case has not been
conclusively discharged by petitioners
Likewise, the power conferred on Demetrio to sell “for such price or
amount” is broad enough to cover the exchange contemplated in the DAC
between the properties and the corresponding corporate shares in PMRDC,
with the latter replacing the cash equivalent of the option money initially agreed
to be paid by PMRDC under the MOA.
Petition is DENIED. The decision of CA is affirmed.
B. Requisites for valid Price
1. The Price Must Be Real – 1471
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to
have been in reality a donation, or some other act or contract.
Mapalo v. Mapalo, 17 SCRA 114 (1966)
FACTS: Spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers,
were registered owners of a residential land in Manaoag, Pangasinan. Said
spouses out of love for Maximo Mapalo — Miguel’s brother who was about to
get married — decided to donate the eastern half of the land to him. As a result,
in 1936, they were deceived into signing a deed of absolute sale over the entire
land in Maximo’s favor. The document of sale stated a consideration of P500.00
which Spouses Mapalo did not receive anything. Following the execution of
document, Miguel and Candida built a fence of permanent structure in the
middle of the land segregating the eastern portion from its western portion. 13
years later, Maximo sold for P2,500.00 the entire land in favor of the Narcicos
and they registered the same. Narcisos filed to be declared owners of the entire
land with possession of its western portion. Spouses Mapalo contend that the
deed of sale of 1936 was procured with fraud and the Narcicos were buyers in
bad faith. Also, it was invoked that the deeds of sale be declared null and void
as to the western half of said land for being fictitious. In reversing the ruling of
the CFI, the CA averred that having obtained the deed of sale by fraud, the
same was voidable, not void ab initio and the action to annul the same had
already prescribed which was within 4 years of notice of fraud. While they are
definitely victims, they lost their right by prescription.
ISSUE: Does the contract involve ‘no consideration’ or ‘false consideration’?
HELD: The rule under the Civil Code, be it the old or the new, is that contracts
without a cause or consideration produce no effect whatsoever. Nonetheless,
under the Old Civil Code, the statement of a false consideration renders the
contract voidable, unless it is proven that it is supported by another real and licit
consideration. And it is further provided by the Old Civil Code that the action
for annulment of a contract on the ground of falsity of consideration shall last
4 years, the term to run from the date of the consummation of the contract. In
the present case, the contract of sale has no consideration and therefore it is
void and inexistent for the said consideration of P500.00 was totally absent.
Purchase price which appears thereon as paid has in fact never been paid by the
purchaser to vendor. This is contrary to what is meant by a contract that states
a false consideration is one that has in fact a real consideration but the same is
not the one stated in the document. Needless to add, the inexistence of a
contract is permanent and incurable and cannot be the subject of prescription.
Imelda Ong, et al. v. Alfredo Ong, et al., 19 SCRA 133 (1985)
FACTS: On February 25, 1976 Imelda Ong, for and in consideration of One
(P1.00) Peso and other valuable considerations, executed in favor of private
respondent Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she
transferred, released, assigned and forever quit-claimed to Sandra Maruzzo, her
heirs and assigns, all her rights, title, interest and participation in the ONE-
HALF (½) undivided portion of the parcel of land.
On November 19, 1980, Imelda Ong revoked the aforesaid Deed of
Quitclaim and, thereafter, on January 20, 1982 donated the whole property
described above to her son, Rex Ong-Jimenez.
Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed
with the Regional Trial Court of Makati, Metro Manila an action against
petitioners, for the recovery of ownership/possession and nullification of the
Deed of Donation over the portion belonging to her and for Accounting.
Petitioners claimed that the Quitclaim Deed is null and void inasmuch
as it is equivalent to a Deed of Donation, acceptance of which by the donee is
necessary to give it validity. Further, it is averred that the donee, Sandra
Maruzzo, being a minor, had no legal personality and therefore incapable of
accepting the donation.
The trial court rendered judgment in favor of respondent Maruzzo and
held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there
was a valid conveyance in favor of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court.
They reiterated their argument below and, in addition, contended that the One
(P1.00) Peso consideration is not a consideration at all to sustain the ruling that
the Deed of Quitclaim is equivalent to a sale.
Respondent Intermediate Appellate Court promulgated its Decision
affirming the appealed judgment and held that the Quitclaim Deed is a
conveyance of property with a valid cause or consideration; that the
consideration is the One (P1.00) Peso which is clearly stated in the deed itself;
that the apparent inadequacy is of no moment since it is the usual practice in
deeds of conveyance to place a nominal amount although there is a more
valuable consideration given.
Issue: Whether a Quitclaim Deed is equivalent to a Deed of Sale
Held: A careful perusal of the subject deed reveals that the conveyance of the
one- half (½) undivided portion of the above-described property was for and in
consideration of the One (P 1.00) Peso and the other valuable considerations
(emphasis supplied) paid by private respondent Sandra Maruzzo through her
representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the
cause or consideration is not the One (P1.00) Peso alone but also the other
valuable considerations.
 The execution of a deed purporting to convey ownership of a realty is
in itself prima facie evidence of the existence of a valuable consideration, the
party alleging lack of consideration has the burden of proving such allegation.
Even granting that the Quitclaim deed in question is a donation, Article
741 of the Civil Code provides that the requirement of the acceptance of the
donation in favor of minor by parents of legal representatives applies only to
onerous and conditional donations where the donation may have to assume
certain charges or burdens (Article 726, Civil Code).
The donation to an incapacitated donee does not need the acceptance
by the lawful representative if said donation does not contain any condition. In
simple and pure donation, the formal acceptance is not important for the donor
requires no right to be protected and the donee neither undertakes to do
anything nor assumes any obligation. The Quitclaim now in question does not
impose any condition.
Bad faith and inadequacy of the monetary consideration do not render
a conveyance inexistent, for the assignor’s liberality may be sufficient cause for
a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may
render either rescissible or voidable, although valid until annulled, a contract
concerning an object certain entered into with a cause and with the consent of
the contracting parties, as in the case at bar.”
WHEREFORE. the appealed decision of the Intermediate Appellate
Court should be, as it is hereby AFFIRMED, with costs against herein
petitioners.
Bagnas v. CA, 176 SCRA 159 (1989)
FACTS: Hilario Mateum died on March 11, 1964, single, without ascendants
or descendants, and survived only by petitioners who are his collateral relatives.
He left no will, no debts, and an estate consisting of 29 parcels of land in Kawit
and Imus, 10 of which are involved in this controversy. On April 3, 1964,
respondents who are also collateral relatives of the deceased, but more remote,
registered 2 deeds of sale purportedly executed by Mateum in their favor. The
considerations were P1.00 and “services rendered, being rendered, and to be
rendered for my benefit”. On the strength of the deeds, respondents were able
to secure title over the 10 parcels of land. On May 22, 1964, petitioners
commenced a suit against respondents, seeking annulment of the deeds of sale
a fictitious, fraudulent or falsified or, alternatively, as donations void for want
of acceptance in public instrument. Respondents contend that the sales were
made for valuable considerations, and attacked the legal standing of the
petitioners as being mere collateral heirs.
Issues:
(1) Whether petitioners have the legal standing to sue
(2) Whether the sale is void for want of consideration
Held:
(1) The law as it is now no longer deems contracts with a false cause, or which
are absolutely simulated or fictitious, merely voidable, but declares them void,
i.e., inexistent ("nulo") unless it is shown that they are supported by another
true and lawful cause or consideration. A logical consequence of that change is
the juridical status of contracts without, or with a false, cause is that conveyances
of property affected with such a vice cannot operate to divest and transfer
ownership, even if unimpugned. If afterwards the transferor dies the property
descends to his heirs, and without regard to the manner in which they are called
to the succession, said heirs may bring an action to recover the property from
the purported transferee. As pointed out, such an action is not founded on
fraud, but on the premise that the property never leaves the estate of the
transferor and is transmitted upon his death to heirs, who would labor under
no incapacity to maintain the action from the mere fact that they may be only
collateral relatives and bound neither principally or subsidiarily under the deed
or contract of conveyance.
(2) Upon the consideration alone that the apparent gross, not to say enormous,
disproportion between the stipulated price (in each deed) of P l.00 plus
unspecified and unquantified services and the undisputably valuable real estate
allegedly sold worth at least P10,500.00 going only by assessments for tax
purposes which, it is well-known, are notoriously low indicators of actual value
plainly and unquestionably demonstrates that they state a false and fictitious
consideration, and no other true and lawful cause having been shown, the Court
finds both said deeds, insofar as they purport to be sales, not merely voidable,
but void ab initio. Neither can the validity of said conveyances be defended on
the theory that their true causa is the liberality of the transferor and they may
be considered in reality donations because the law also prescribes that donations
of immovable property, to be valid, must be made and accepted in a public
instrument, and it is not denied by the respondents that there has been no such
acceptance which they claim is not required. The transfers in question being
void, it follows as a necessary consequence and conformably to the concurring
opinion in Armentia, with which the Court fully agrees, that the properties
purportedly conveyed remained part of the estate of Hilario Mateum, said
transfers notwithstanding, recoverable by his intestate heirs, the petitioners
herein, whose status as such is not challenged.
Mate v. CA, 290 SCRA 463 (1998)
FACTS: On October 6, 1986, Josefina “Josie” Rey and private respondent Tan
went to the residence of petitioner in Tacloban City. Josie solicited his help to
stave her off her prosecution by respondent for violation of B. P. 22. Josie asked
petitioner to cede to respondent his 3 lots. Josie explained to him that he was
in no danger of losing his property as they will be redeemed by her own funds.
After a long discussion, petitioner agreed to execute a fictitious deed of sale with
right to repurchase after 6 months. Josie gave petitioner 2 post-dated checks to
be used in redeeming the property. However, the checks were both
dishonoured. Realizing that he was swindled, he sent a telegram to Josie, and
looked for her in Manila, but she was nowhere to be found. Petitioner filed a
criminal case against Josie for violation of B. P. 22, but the case was archived
since Josie could not be located. Petitioner filed a case for annulment of contract
with damages against Josie and respondent. Josie was declared in default and
the case proceeded against respondent. Both the trial court and the Court of
Appeals upheld the validity of the sale.
Issue: Whether the sale was null and void for want of consideration
Held: It is plain that consideration existed at the time of the execution of the
deed of sale with right of repurchase. It is not only appellant's kindness to
Josefina, being his cousin, but also his receipt of P420,000.00 from her which
impelled him to execute such contract. Furthermore, while petitioner did not
receive the P1.4 Million purchase prices from respondent Tan, he had in his
possession a postdated check of Josie Rey in an equivalent amount precisely to
repurchase the two lots on or before the sixth month. Unfortunately, the two
checks issued by Josie Rey were worthless. Both were dishonored upon
presentment by petitioner with the drawee banks. However, there is absolutely
no basis for petitioner to file a complaint against private respondent Tan and
Josie Rey to annul the pacto de retro sale on the ground of lack of consideration,
invoking his failure to encash the two checks. Petitioner's cause of action was
to file criminal actions against Josie Rey under B.P. 22, which he did. The filing
of the criminal cases was a tacit admission by petitioner that there was a
consideration of the pacto de retro sale.
Alino v. Heirs of Lorenzo, 556 SCRA 139
FACTS:
• A 1,745 sq m. of land in Sinsuat Avenue, Rosary Heights Cotabato City
a TCT was registered in the name of Lucia.
• Angelica Lorenzo (Lucia's daughter) bought the loat for P10,000 under
a Deed of Absolute Sale. The TCT in the name of Lucia was cancelled
and was issued in Angelica's name. The lot was declared for taxation
purposes in Angelica's name
• Although the tax declaration was in Angelica's name, Lucia continued
to pay, under her name the real estate taxes from 1980-1987. Lucia
then designated Vivian as caretaker of the lot and Vivian even built a
house on the lot and resided.
• Angelica died leaving her husband and children. They executed an
Extra-Judicial Settlement of her estate and the subject lot was
adjudicated to Angelica's minor children and a TCT was issued in their
name.
• Lucia executed a document authorizing Bautista to look for a buyer for
her lots. Lucia offered to Central Bank of the Philippines including the
lot which was registered in Angelica's name. Lucia wrote to the
husband (Servillano, Sr) to return the lot but he refused.
• Angelica filed for the declaration of nullity of Deed of Absolute Sale.
• During the pendency of the case, Lucia died and was substituted by
her heirs (petitioner's in this case
Ø Petitioner's contend that the sale was simulated and there was absence
on the part of Angelica or her husband to assert dominical rights over
the property, Lucia remained in continuous possession of the lot and
even paid for the real property taxed due.
Ø Respondent heirs contend that the sale was not simulated and Lucia
did not take any concrete steps to recover the subject lot.
RTC & CA held that the sale was simulated
ISSUE: Is the Deed of Absolute Sale executed by Lucia in favor of her daughter
Angelica, valid and binding upon the parties? NO
HELD:
• The intention of the parties shall be accorded primordial consideration,
which is determined from the express terms of the agreement as well
as their contemporaneous and subsequent acts.
• In this case, Angelica and her husband did not attempt to exercise any
act of dominion over the lot from the sale was made until the
institution of the complaint by Lucia. They did not enter the subject
property not occupy the premises and even the respondent heirs did
not take possession of the lot.
• Actual possession of land consists in the manifestation of acts of
dominion over it in a way that a person would naturally exercise over
his own property. It is not necessary that the owner of a parcel of
land should himself occupy the property because someone in his
name may perform the act.
• In this case, Lucia was in actual possession of the property and she
designated Vivian as a caretaker of the subject lot and Vivian even
constructed a house on the lot and has been residing since then.
Notes connected to the topic:
• In this case, Lucia religiously paid the realty taxes on the lot from
1980-1987. Although they are not incontrovertible evidence, they are
good indicia of possession in the concept of owner, for no one in
his right mind would be paying taxes for a property that is not in his
actual or at least constructive possession
• An action for reconveyance prescribes in 10 years from the date of
registration of deed or issuance of certificate of title. BUT if the person
claiming to be the owner is in actual possession, the right to seek
reconveyance does not prescribe. Because one who is in actual
possession of the a piece of land claiming to be the owner may wait
until his possession is disturbed before taking steps to vindicate his
right. In this case, Lucia continuously possessed the subject lot, her
right to institute a suit to clear the cloud over her title cannot be barred
by statute of limitations
• As for the issue on simulated contracts, the Court held that inadequacy
or non-payment of price is irreconcilable with the concept of
simulation; if there exists an actual consideration (in this case, only
P10k). No matter how inadequate it may be, the transaction could not
a "simulated sale".
• As to filial relationship, A sale between a mother and daughter cannot
be considered an indication of simulation absent an indication of the
absence of intent to be bound by the contract which was shown by the
subsequent acts of the parties in this case.
WHEREFORE, The Deed of Absolute Sale is null and void ab initio. And the
respondents are ordered to reconvey the subject lot to the petitioners.
a) Simulated price
Land Bank of the Phils. v. Poblete, 691 SCRA 613
FACTS: On October 1997, respondent Poblete obtained a loan worth P300k
from Kapantay Multi-Purpose. She mortgaged her Lot No.29 located in
Buenavista, Sablayan, Occidental Mindoro, under OCT No. P-12026. Kapantay,
in turn, used OCT No. P-12026 as collateral under its Loan Account No. 97-
OC-013 with Land Bank-Sablayan Branch.
After a year, Poblete instructed her son-in-law Domingo Balen to look
for a buyer for the Lot No. 29 in order to pay her loan and he referred Angelito
Joseph Maniego. Both parties agreed that the lot shall amount to P 900k but in
order to reduce taxes they will execute a P 300k agreed price appearing in the
Deed of Absolute Sale dated November 9, 1998. In the Deed, Poblete
specifically described herself as a widow. Balen, then, delivered the Deed to
Maniego. Instead of paying the price, Maniego promised in an affidavit dated
November 19, 1998 stating that the said amount will be deposited to her Land
Bank Savings Account but he failed to do so.
On August 1999, Maniego paid Kapantay’s Loan Account for
P448,202.08 and on subsequent year he applied for a loan worth P1M from
Land Bank using OCT No. P-12026 as a collateral with a condition that the title
must be first transferred on his name. On August 14, 2000, the Registry of
Deeds issued TCT No. T-20151 in Maniego’s name pursuant to a Deed of
Absolute Sale with the signatures of Mrs. Poblete and her husband dated August
11, 2000 and Maniego successfully availed the Credit Line Agreement for P1M
and a Real Estate Mortgage over TCT No. T-20151 on August 15, 2000. On
November 2002, Land Bank filed an Application for an Extra-judicial
Foreclosure against the said Mortgage stating that Maniego failed to pay his
loan.
Poblete filed a complaint for nullification of the Deed of Sale dated
August 11, 2000 and TCT No. T-20151, Reconveyance of the Title and
Damages with a Prayer for Temporary Restraining Order and/or Issuance of
Writ of Preliminary Injunction against Maniego, Landbank and the Register of
Deeds. The judgment of RTC, affirmed by the CA upon appeal, favors the
plaintiff Poblete. Hence, this petition.
ISSUE: W/N the CA erred in upholding the finding of the trial court declaring
the TCT No. T-20151 as null and void.
Held: The petition is meritorious.
It is well-entrenched rule, as applied, by the CA, that a forged or
fraudulent deed is a nullity and conveys no title. Moreover, where the deed of
sale states that the purchase price has been paid but in fact has never been, the
deed is void ab initio for lack of consideration. Since the deed, is void, the title
is also void. Since the land title has been declared void by final judgment, the
Real Estate Mortgage over it is also void.
It is essential that the mortgagor be the absolute owner of the
mortgage; otherwise, the mortgage is void. The doctrine ―the mortgagee in
good faith as a rule does not apply to banks which are required to observe a
higher standard of diligence. A bank cannot assume that, simply because the
title offered as security is on its face, free of any encumbrances or lien, it is
relieved of the responsibility of taking further steps to verify the title and inspect
the properties to be mortgage.
The records do not even show that Land Bank investigated and
inspected the actual occupants. Land Bank merely mentioned Maniego’s loan
application upon his presentation of OCT No. P-12026, which was still under
the name of Poblete. Land Bank even ignored the fact that Kapantay previously
used Poblete’s title as collateral in its loan account with Land Bank.
Furthermore, only one day after Maniego obtained TCT No. P-20151
under his name, Land Bank and Maniego executed a Credit Line Agreement
and Real Mortgage. It appears that Maniego’s loan was already completely
processed while the collateral was still in the name of Poblete. Where said
mortgagee acted with haste in granting the mortgage loan and did not ascertain
the ownership of the land being mortgaged, it cannot be considered innocent
mortgagee.
The pari delicto rule provides ―when two parties are equally at fault,
the law leaves them as they are and denies recovery by either one of them. This
court adopt the decisions of RTC and CA that only Maniego is at fault. Finally,
on the issue of estoppels and laches, such question were not raised before the
trial court. It is settled that an issue which are neither alleged in the complaint
nor raised during the trial cannot be raised for the time on appeal.
The issue on the nullity of Maniego’s title had already been foreclosed
when this Court denied Maniego’s petition for review in the Resolution dated
13 July 2011, which became final and executory on 19 January 2012. It is settled
that a decision that has acquired finality becomes immutable and unalterable
and may no longer be modified in any respect, even if the modification is meant
to correct erroneous conclusions of fact or law and whether it will be made by
the court that rendered it or by the highest court of the land. This is without
prejudice, however, to the right of Maniego to recover from Poblete what he
paid to Kapantay for the account of Poblete, otherwise there will be unjust
enrichment by Poblete.
b) False consideration - 1353 and 1354
Art. 1353. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs,
public order or public policy.
Art. 1354. The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is true
and lawful.
c) Non-payment of price
Macasaet v. R. Transport Corp., 535 SCRA 503 (2007)
FACTS: On 3 January 1996, a Complaint for Recovery of Possession and
Damages was filed by R. Transport Corporation against Alexander Macasaet at
the Regional Trial Court (RTC) of Makati, Branch 147. The complaint stated
that R. Transport was a holder of Certificates of Public Convenience (CPC) to
operate a public utility bus service within Metro Manila and the provinces
whereas New Mindoro Transport Classic (NMTC), operates a transportation
company in Oriental Mindoro.
On 11 October 1995, R. Transport and Macasaet entered into a "Deed
of Sale with Assumption of Mortgage" (deed of sale) over four (4) passenger
buses where Macasaet agreed to pay the consideration of twelve million pesos
(P12,000,000.00) and assume the existing mortgage obligation on the said buses
in favor of Phil. Hino Sales Corporation.
R. Transport delivered to Macasaet two (2) passenger buses.
However, despite repeated demands, Macasaet failed to pay the
stipulated purchase price. This impelled R. Transport to file a complaint seeking
the issuance of a writ of replevin, praying for judgment declaring R. Transport
as the lawful owner and possessor of the passenger buses and regulating
Macasaet to remit the amount of P660,000.00 representing the income
generated by the two buses from 16 October 1995 to 2 January 1996.
On 8 October 1995, "Special Trip Contract" was entered into by the
parties. This contract stipulated that R. Transport would lease the four buses
subject of the deed of sale to Macasaet for the sum of P10,000.00 a day per bus
or a total of P280,000.00 for the duration of one week, from 15-22 October
1995. Respondent's finance officer testified that the purpose of the contract was
to support the delivery of the first two buses pending formal execution of the
deed of sale.
On 8 January 1996, on R. Transport's motion, the trial court issued a
writ of seizure ordering the sheriff to take possession of the two buses in
NMTC subject to R. Transport's filing of a bond in the amount
of P12,000,000.00. The sheriff recovered the two buses and delivered them to
R. Transport on 16 January 1996.
The petitioner defended that he had paid respondent the full
consideration of P12,000,000.00 and had agreed to assume the mortgage
obligation in favor of Phil. Hino Sales Corporation. He also claimed ownership
over the four passenger buses, including the two buses already delivered to him.
He further contended that he had already remitted P120,000.00 to respondent
as partial payment of the mortgage obligation. Petitioner admitted that he had
been earning at least P7,000.00 per day on each of the buses. For his
counterclaim, he demanded for the return of the bus units seized and the
immediate delivery of the other two units, as well as for payment of damages.
ISSUE: Whether the provision stated in Section 34 of Rule 132 of the Rules of
Court (“the court shall consider no evidence which has not been formally
offered”) applicable in the case at bar?
Ruling: The petition filed was denied. However, the petitioner is demanded to
pay respondent damages in the form of reasonable rentals in the amount
of P1,460,000.00 with interest at 12% per annum from the finality of this
decision, with a lien thereon corresponding to the additional filing fees adverted
to above.
The court declared that the non-perfection of the deed of sale precluded
petitioner from possessing the buses. In accordance with Article 1318 of the
New Civil Code, the requisites of a contract are as follows: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract;
and (3) cause of the obligation which is established. Thus, contracts, other than
real contracts are perfected by mere consent which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. Once perfected, they bind other contracting parties and
the obligations that arise have the force of law between the parties and should
be complied with in good faith. The parties are bound not only to the fulfillment
of what has been expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
The Court of Appeals relied on the text of the deed of sale which
adverts to payment of the purchase price, the non-payment of the purchase
price was no longer an issue. Respondent presented strong evidence that
petitioner did not pay the purchase price, and that paved the way for the
issuance of a writ of replevin. Petitioner did not challenge the finding of the
trial court before the Court of Appeals and this Court. He did not also
controvert the non-consummation of the assumption of mortgage at any level
of the proceedings.
The result of the rescission of the contract of sale is the recovery
of possession of the object thereof. Thus, petitioner’s possession over the
passenger buses became unlawful when upon demand for return, he wrongfully
retained possession over the same.
2. The Price Must Be in Money or Its Equivalent
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Art. 1468. If the consideration of the contract consists partly in money, and partly
in another thing, the transaction shall be characterized by the manifest intention
of the parties. If such intention does not clearly appear, it shall be considered a
barter if the value of the thing given as a part of the consideration exceeds the
amount of the money or its equivalent; otherwise, it is a sale.
3. The Price Must be Certain or Ascertainable at the Time of Perfection -
1469
Art. 1469. In order that the price may be considered certain, it shall be sufficient
that it be so with reference to another thing certain, or that the determination
thereof be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts
may fix the price.
Where such third person or persons are prevented from fixing the price
or terms by fault of the seller or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the seller or the buyer, as the case
may be.
C. Manner of Payment of Price must be Agreed Upon -
Velasco v. CA, 51 SCRA 439 (1973)
FACTS:
Petitioner: On November 29, 1962 parties entered into contract of sale of land
for P100,000. The payment terms would be a down payment of P10,000 and
20,000 and the P70,000 is payable in installment. Petitioner then paid the
P10,000 down payment on November 29, 1962. On January 8, 1964 he paid the
remaining 20,000 but the respondent refused to accept and execute a deed of
sale.
Respondent: No contract of sale was perfected because the minds of the
parties did not meet. The property was leased by Socorro Velasco and the
defendant indicated willingness in selling the property for 100,000 under the
terms of P30,000 down payment, 20,000 of which to be paid on November 30,
1962 and the remaining 70,000 is payable in 10 years with 9% interest per
annum. On November 29, 1962 Socorro paid 10,000, short of the alleged 20,000
agreed down payment. However, said payment was accepted. On January 8,
1964 Socorro tendered the 20,000 down payment but defendant refused to
accept because the latter considered the contract rescinded on the account the
former’s failure to complete the down payment on or before December 31,
1962.
ISSUE: W/N a contracted sale was perfected between the parties.
HELD: No. The minds of the parties did not meet “in regard to the manner
of payment.” It is not difficult to glean from the aforequoted averments that
the petitioners themselves admit that they and the respondent still had to meet
and agree on how and when the down-payment and the installment payments
were to be paid. Such being the situation, it cannot, therefore, be said that a
definite and firm sales agreement between the parties had been perfected over
the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale.3 The
fact, therefore, that the petitioners delivered to the respondent the sum of
P10,000 as part of the down-payment that they had to pay cannot be considered
as sufficient proof of the perfection of any purchase and sale agreement
between the parties herein under article 1482 of the new Civil Code, as the
petitioners themselves admit that some essential matter — the terms of payment
— still had to be mutually covenanted.
San Miguel Properties Philippines v. Huang, 336 SCRA 737 (2000)
FACTS: San Miguel Properties offered two parcels of land for sale and the
offer was made to an agent of the respondents. An “earnest-deposit” of P1
million was offered by the respondents and was accepted by the petitioner’s
authorized officer subject to certain terms.
Petitioner, through its executive officer, wrote the respondent’s lawyer
that because ethe parties failed to agree on the terms and conditions of the sale
despite the extension granted by the petitioner, the latter was returning the
“earnest-deposit”.
The respondents demanded execution of a deed of sale covering the
properties and attempted to return the “earnest-deposit” but petitioner refused
on the ground that the option to purchase had already expired.
A complaint for specific performance was filed against the petitioner
and the latter filed a motion to dismiss the complaint because the alleged
“exclusive option” of the respondents lacked a consideration separate and
distinct from the purchase price and was thus unenforceable; the complaint did
not allege a cause of action because there was no “meeting of the mind”
between the parties and therefore the contact of sale was not perfected.
The trial court granted the petitioner’s motion and dismissed the
action. The respondents filed a motion for reconsideration but were denied by
the trial court. The respondents elevated the matter to the Court of Appeals and
the latter reversed the decision of the trial court and held that a valid contract
of sale had been complied with.
Petitioner filed a motion for reconsideration but was denied.
Issue: W/N there was a perfected contract of sale between the parties
Ruling: The decision of the appellate court was reversed, and the respondents’
complaint was dismissed.
Ratio Decidendi: It is not the giving of earnest money, but the proof of the
concurrence of all the essential elements of the contract of sale which
establishes the existence of a perfected sale.
The P1 million “earnest-deposit” could not have been given as earnest
money because at the time when petitioner accepted the terms of respondents’
offer, their contract had not yet been perfected. This is evident from the
following conditions attached by respondents to their letter.
The first condition for an option period of 30 days sufficiently shows
that a sale was never perfected. As petitioner correctly points out, acceptance of
this condition did not give rise to a perfected sale but merely to an option or an
accepted unilateral promise on the part of respondents to buy the subject
properties within 30 days from the date of acceptance of the offer. Such option
giving respondents the exclusive right to buy the properties within the period
agreed upon is separate and distinct from the contract of sale which the parties
may enter. All that respondents had was just the option to buy the properties
which privilege was not, however, exercised by them because there was a failure
to agree on the terms of payment. No contract of sale may thus be enforced by
respondents.
Even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral
promise to buy or sell a determinate thing for a price certain is binding upon
the promisor only if the promise is supported by a distinct consideration.
Consideration in an option contract may be anything of value, unlike in sale
where it must be the price certain in money or its equivalent. There is no
showing here of any consideration for the option. Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the
second condition that, during the option period, the parties would negotiate the
terms and conditions of the purchase. The stages of a contract of sale are as
follows: (1) negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties
as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.
In the present case, the parties never got past the negotiation stage.
The alleged “indubitable evidence” of a perfected sale cited by the appellate
court was nothing more than offers and counter-offers which did not amount
to any final arrangement containing the essential elements of a contract of sale.
While the parties already agreed on the real properties which were the objects
of the sale and on the purchase price, the fact remains that they failed to arrive
at mutually acceptable terms of payment, despite the 45-day extension given by
petitioner.
Co v. CA, 286 SCRA 76 (1998)
FACTS: Private respondent Benito Ngo purchased from Nazario Gonzales a
parcel of land known as Lot Nos. 7-A and 7-B situated in Iriga City.
Antonio Ong, on the other hand, claiming to have purchased Lots
Nos. 7-A and 7-B from Nazario Gonzales through his attorney-in-fact Rustica
Gonzales Rivera, filed an action against Benito Ngo with the then Court of First
Instance of Camarines Sur for annulment of sale, reconveyance and damages.
 Antonio Ong and Benito Ngo assisted by their respective counsel
executed an amicable settlement which provided that Lot No. 7-A would belong
to Antonio Ong and Lot No. 7-B to Benito Ngo.
However, before the same could be approved, a complaint-in-
intervention was filed by petitioner Leon Co alleging that it was agreed that Lot
No. 7-B would go to him after paying respondent Benito Ngo P49,500.00 for
the lot. Petitioner presented as sole documentary basis of the alleged sale of the
property the Minutes of the special meeting of the Filipino-Chinese Chambers
of Commerce.
ISSUE: Was there a sale of the subject property between Petitioner and Private
Respondent?
HELD: NONE. Nothing in the document (of amicable settlement) presented
by Petitioner speaks of any agreement between petitioner and private
respondent wherein petitioner shall buy the property and private respondent to
sell the same to petitioner. What transpired during the meeting, as indicated in
the Minutes, was that the relatives of Antonio Ong and respondent Benito Ngo
agreed to participate in the amicable settlement by contributing their own funds
for the purpose.
In fine, the evidence of petitioner does not indicate a perfection of the
purported contract of sale. Under Art. 1475 of the Code, "the contract of sale
is perfected at the moment there is meeting of the minds upon the thing which
is the object of the contract and upon the price. From that moment the parties
may reciprocally demand performance subject to the provisions of the law
governing the form of contracts."
A definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of
sale. 8 Petitioner's testimonial and documentary evidence did not establish any
definitive agreement or meeting of the minds between the parties concerning
the price or term of payment.
Amado v. Salvador, 540 SCRA 161
FACTS: Petitioners are the heirs of the late Judge Amado, who was the owner
of a parcel of land situated at Barangay Burgos, Rodriguez, Rizal. The property
subject of the present controversy is a portion thereof in the name of Judge
Amado.
SALVADOR’S SIDE: Salvador alleges that in or around September 1979,
Judge Amado agreed to sell to him the subject property for P60.00 per square
meter, or in the total sum of P66,360.00, payable in cash or construction
materials which would be delivered to Judge Amado, or to whomsoever the
latter wished during his lifetime. Salvador though failed to state the terms of
payment, such as the period within which the payment was supposed to be
completed, or how much of the payment should be made in cash.
In view of the sale in his favor, Salvador undertook the transfer and
relocation of about five squatter families residing on the subject property.
Thereafter, Judge Amado allowed Salvador to take possession of the subject
property and to build thereon a residential structure, office, warehouse,
perimeter fence and a deep well pump.
Salvador claims that by October 1980, he had already given Judge
Amado total cash advances of P30,310.93 and delivered construction materials
amounting to P36,904.45, the total of which exceeded the agreed price for the
subject property.
PETITIONERS’ SIDE: According to the petitioners, on the other hand,
Judge Amado let Salvador use the subject property, upon the request of the
latter’s father and grandfather, who were Judge Amado’s friends. Salvador used
the subject property for his business of manufacturing hollow blocks. The
petitioners maintain that the cash advances and the various construction
materials were received by Judge Amado from Salvador in connection with a
loan agreement, and not as payment for the sale of the subject property.
Petitioners assert that when Salvador’s business folded up, he failed to
pay his share of the monthly amortization of the loan with the bank. Judge
Amado paid the loan to prevent the foreclosure of his mortgaged property.
Salvador also allowed his brother Lamberto Salvador to occupy the premises
without the consent of Judge Amado.
On 4 November 1983, Judge Amado sent a demand letter to Salvador directing
the latter to vacate the subject property, which Salvador merely ignored.
Judge Amado filed an ejectment suit against Salvador before the
Municipal Trial Court (MTC) of Rodriguez.
During the hearing before the MTC, Salvador and his brother,
Lamberto Salvador, defendants therein, stated in their Answer with
Counterclaim that a balance of P4,040.62 from the purchase price of the subject
property was left unpaid due to the failure of Judge Amado to execute and
deliver a deed of sale. MTC and RTC dismissed the case for lack of jurisdiction.
 On 22 August 1996, Salvador filed before the RTC Civil Case No.
1252, an action for specific performance with damages against the
petitioners.As evidence that the sale of the subject property was perfected
between Judge Amado and himself, Salvador presented a note written by Judge
Amado asking Salvador to give him P500.00 and stating that Judge Amado was
considering to sign the letter given to him by Kapitan Maeng.
To prove that he paid the purchase price, Salvador submitted
documents including cash advances, statement of accounts considering
construction materials, etc. showing he paid cash and delivered construction
materials to Judge Amado.
RTC’s RULING: The RTC dismissed Salvadors complaint. The trial court
observed that it was not indicated in the documentary evidence presented by
Salvador that the money and construction materials were intended as payment
for the subject property. It gave little probative value to tax declarations in the
name of Salvador since they referred to the improvements on the land and not
the land itself.
The testimonial evidence given by Ismael Angeles was considered
insufficient to prove the fact of sale because the witness failed to categorically
state that a sale transaction had taken place between Salvador and Judge Amado.
Salvador was disqualified under the Dead Mans Statute from testifying
on any matter of fact involving a transaction between him and Judge Amado
which occurred before the death of the latter.
COURT OF APPEALS’ RULING
(1) The Court of Appeals found that Salvador paid for the subject land with
cash advances and construction materials, since petitioners failed to present any
evidence showing that the construction materials Salvador delivered to Judge
Amado had been paid for.
(2) It construed as adequate proof of the sale the handwritten note of Judge
Amado wherein the latter promised to sign an unidentified deed after the
subdivision of an unnamed property, in light of Ismael Angeles testimony that
Judge Amado had promised to sign a deed of sale over the subject property in
favor of Salvador.
(3) Salvador’s testimony was not barred because of the Dead Mans Statute.
ISSUE: Whether there was a perfected contract of sale or none
RULING: No contract of sale was perfected between Judge Amado and
Salvador.
A contract of sale is perfected by mere consent, upon a meeting of the
minds in the offer and the acceptance thereof based on subject matter, price
and terms of payment. Until the contract of sale is perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between
the parties.
Consent is essential for the existence of a contract, and where it is absent, the
contract is non-existent. Consent in contracts presupposes the following
requisites: (1) it should be intelligent or with an exact notion of the matter to
which it refers; (2) it should be free; and (3) it should be spontaneous.
Moreover, a definite agreement on the manner of payment of the price
is an essential element in the formation of a binding and enforceable contract
of sale. This is so because the agreement as to the manner of payment goes into
the price such that a disagreement on the manner of payment is tantamount to
a failure to agree on the price or consideration.
Salvador fails to allege the manner of payment of the purchase price
on which the parties should have agreed. No period was set within which the
payment must be made. Of the purchase price of P66,360.00, which the parties
purportedly agreed upon, the amount which should be paid in cash and the
amount for construction materials was not determined. This means that the
parties had no exact notion of the consideration for the contract to which they
supposedly gave their consent. Thus, such failure is fatal to Salvador’s claim that
a sale had been agreed upon by the parties.
First of all, the statements of accounts and the delivery receipts do not
indicate that the construction materials or the cash advances were made in
connection with the sale of the subject property. Any doubt as to the real
meaning of the contract must be resolved against the person who drafted the
instrument and is responsible for the ambiguity thereof.
Irregular statements
P67k vs.P69k
This Court cannot presume the existence of a sale of land, absent any
direct proof of it. The construction of the terms of a contract, which would
amount to impairment or loss of rights, is not favored. Conservation and
preservation, not waiver or abandonment or forfeiture of a right, is the rule.
Absent any tangible connection with the sale of land, these transactions stand
by themselves as loans and purchases of construction materials.
Ismael Angeles’ testimony is not conclusive. At best, it only proves that
judge Amado considered to sell the land. Even if Ismael Angeles testimony was
given full credence, it would still be insufficient to establish that a sale agreement
was perfected between Salvador and Judge Amado. His testimony that Judge
Amado ordered the preparation of the deed of sale only proves that Judge
Amado and Salvador were in the process of negotiating the sale of the subject
property, not that they had already set and agreed to the terms and conditions
of the sale. In fact, Ismael Angeles testimony that Judge Amado refused to sign
the contract reinforces the fact that the latter had not consented to the sale of
the subject property.
From the evidence presented, an agreement of sale of the subject property
between him and Judge Amado had not yet reached the stage of perfection:
A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation
covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded
(perfected).The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of the
minds, i.e. the concurrence of offer and acceptance, on the object and
on the cause thereof. x x x. The stage of consummation begins when
the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees.
In the present case, the terms of payment have not even been alleged.
No positive proof was adduced that Judge Amado had fully accepted Salvador’s
sketchy proposal. Even if the handwritten note actually referred to the subject
property, it merely points to the fact that the parties were, at best, negotiating a
contract of sale. At the time it was written, on 1 October 1980, Judge Amado
had not expressed his unconditional acceptance of Salvador’s offer. He merely
expressed that he was considering the sale of the subject property, but it was
nevertheless clear that he still was unprepared to sign the contract.
Absent the valid sale agreement between Salvador and Judge Amado,
the formers possession of the subject property hinges on the permission and
goodwill of Judge Amado and the petitioners, as his successors-in-interest.
Navarra v. Planters Development Bank, 527 SCRA 562
FACTS: Jorge Navarra sent a letter to Planters Bank, proposing to repurchase
the five (5) lots earlier auctioned to the Bank, with a request that he be given
until August 31, 1985 to pay the down payment of P300,000.00.
Because the amount of P300,000.00 was sourced from a different transaction
between RRRC and Planters Bank and involved different debtors, the Bank
required Navarra to submit a board resolution from RRRC authorizing him to
negotiate for and its behalf and empowering him to apply the excess amount of
P300,000.00 in RRRC’s redemption payment as down payment for the
repurchase of the Navarras’ foreclosed properties.
Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra
informing him that it could not proceed with the documentation of the
proposed repurchase of the foreclosed properties on account of his non-
compliance with the Bank’s request for the submission of the needed board
resolution of RRRC.
The Navarras filed their complaint for Specific Performance with Injunction against
Planters Bank. In their complaint the Navarras, as plaintiffs, alleged that a
perfected contract of sale was made between them and Planters Bank whereby
they would repurchase the subject properties for P1,800,000.00 with a down
payment of P300,000.00.
ISSUE: Whether there is a perfected contract of sale.
HELD: There is no perfected contract of sale. The essential requisite of
consent is lacking.
The eventual failure of the spouses to submit the required board
resolution precludes the perfection of a contract of sale/repurchase between
the parties. Contracts are perfected when there is concurrence of the parties’
wills, manifested by the acceptance by one of the offer made by the other. Here,
there was no concurrence of the offer and acceptance as would result in a
perfected contract of sale.
Evidently, what transpired between the parties was only a prolonged
negotiation to buy and to sell, and, at the most, an offer and a counter-offer
with no definite agreement having been reached by them.
D. How Price Determined
Art. 1469. In order that the price may be considered certain, it shall be sufficient
that it be so with reference to another thing certain, or that the determination
thereof be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts
may fix the price.
Where such third person or persons are prevented from fixing the price
or terms by fault of the seller or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the seller or the buyer, as the case
may be.
1. By Third Person – 1469
2. By the Courts – 1469
3. By reference to a definite day, particular exchange or market – 1472
Art. 1472. The price of securities, grain, liquids, and other things shall also be
considered certain, when the price fixed is that which the thing sold would have
on a definite day, or in a particular exchange or market, or when an amount is fixed
above or below the price on such day, or in such exchange or market, provided
said amount be certain.
4. By reference to another thing certain
5. But never by one party to the contract - 1473, 1182
Art. 1473. The fixing of the price can never be left to the discretion of one of the
contracting parties. However, if the price fixed by one of the parties is accepted by
the other, the sale is perfected.
6. Effect of unascertainability - 1474
Art. 1474. Where the price cannot be determined in accordance with the preceding
articles, or in any other manner, the contract is inefficacious. However, if the thing
or any part thereof has been delivered to and appropriated by the buyer, he must
pay a reasonable price therefor. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.
E. Gross Inadequacy of Price -1355, 1386, 1470 and 1602.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
with respect to contracts approved by the courts.
Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as
it may indicate a defect in the consent, or that the parties really intended a donation
or some other act or contract.
Art. 1602. If the immovable sold should be encumbered with any non- apparent
burden or servitude, not mentioned in the agreement, of such a nature that it must
be presumed that the vendee would not have acquired it had he been aware
thereof, he may ask for the rescission of the contract, unless he should prefer the
appropriate indemnity. Neither right can be exercised if the non-apparent burden
or servitude is recorded in the Registry of Property, unless there is an express
warranty that the thing is free from all burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the
vendee may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within
an equal period, to be counted from the date on which he discovered the burden
or servitude.
F. Judicial Sale
G. Rescissible Contracts of Sale - 1380 & 1381
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established
by law.
Art. 1381. The following contracts are rescissible:
1. Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
 3. Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
4. Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
5. All other contracts specially declared by law to be subject to rescission.

H. Sales With Right to Purchase – 1602 and 1604

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of

the following cases:
1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period
is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
In any other case where it may be fairly inferred that the real intention of the parties
is that the transaction shall secure the payment of a debt or the performance of
any other obligation.

Art. 1604. The provisions of article 1602 shall also apply to a contract purporting
to be an absolute sale.
 V. FORMATION OF CONTRACT SALE (Arts. 1475-1488)-
ARTICLE 1475. The contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
ARTICLE 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by
the fall of the hammer, or in other customary manner. Until such announcement
is made, any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to
bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to
employ or induce any person to bid at such sale on his behalf or for the auctioneer,
to employ or induce any person to bid at such sale on behalf of the seller or
knowingly to take any bid from the seller or any person employed by him. Any sale
contravening this rule may be treated as fraudulent by the buyer.
ARTICLE 1477. The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof.
ARTICLE 1478. The parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price.
ARTICLE 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.
ARTICLE 1480. Any injury to or benefit from the thing sold, after the contract
has been perfected, from the moment of the perfection of the contract to the time
of delivery, shall be governed by articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a
single price, or without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight,
number, or measure, the risk shall not be imputed to the vendee until they have
been weighed, counted, or measured and delivered, unless the latter has incurred
in delay.
ARTICLE 1481. In the contract of sale of goods by description or by sample, the
contract may be rescinded if the bulk of the goods delivered do not correspond
with the description or the sample, and if the contract be by sample as well as
description, it is not sufficient that the bulk of goods correspond with the sample
if they do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with
the description or the sample.
ARTICLE 1482. Whenever earnest money is given in a contract of sale, it shall
be considered as part of the price and as proof of the perfection of the contract.
ARTICLE 1483. Subject to the provisions of the Statute of Frauds and of any
other applicable statute, a contract of sale may be made in writing, or by word of
mouth, or partly in writing and partly by word of mouth, or may be inferred from
the conduct of the parties.
ARTICLE 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
ARTICLE 1485. The preceding article shall be applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.
ARTICLE 1486. In the cases referred to in the two preceding articles, a stipulation
that the installments or rents paid shall not be returned to the vendee or lessee
shall be valid insofar as the same may not be unconscionable under the
circumstances.
ARTICLE 1487. The expenses for the execution and registration of the sale shall
be borne by the vendor, unless there is a stipulation to the contrary.
ARTICLE 1488. The expropriation of property for public use is governed by
special laws.
A. PREPARATORY (Art. 1479)
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.
1. Policitation – negotiation, preparation, conception or generation
stage, which is the period of negotiation and bargaining, ending at the
moment of perfection.
- Covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded
(perfected).
2. Option Contract -
Carcellar – definition of option contract
- Substantial compliance
Carcellar v. CA, 302 SCRA 718 (1999)
FACTS: Respondent State Investment Houses Inc. has a parcel of land
in Cebu City leased to petitioner Jose Ramon Carceller with an option to
purchase valid until the expiration of the lease contract.
3 weeks before the expiration of the contract, petitioner made a request to the
respondent for the extension of the lease contact so he can have an ample time
to raise enough funds to avail of the option of sale.
Respondent denied the request and a month after the expiration of the contract,
petitioner made known his intention to buy the property.
Respondent reiterated the provisions in the contract and asked the petitioner to
leave the property, which will now be offered to the general public for a higher
price.
ISSUE: WON can still exercise his option of sale even after the time to do such
has already lapsed.
HELD: The contract must be interpreted together with the intention of the
parties. The letter of the plaintiff to the respondent requesting for an extension
is sufficient proof of his intent to avail of the option of sale.
In contractual relations, the law allows the parties reasonable leeway on the
terms of their agreement, which is the law between them. When petitioner made
his intention to buy known to the buyer one month after the expiration of
contract is within a reasonable time- frame.
Petitioner may buy the property but not anymore to the price stated in the
contract. As such, respondent may increase the price of the land but only to a
reasonable and fair market value.
An option is a preparatory contract in which one party grants to the other, for
a fixed period and under specified conditions, the power to decide, whether or
not to enter into a principal contract. It binds the party who has given the
option, not to enter into the principal contract with any other person during the
period designated, and, within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the
option. It is a separate agreement distinct from the contract which the parties
may enter into upon the consummation of the option.
---------------
FACTS: Carceller leased 2 parcels of land owned by State Investment Houses
(SIHI), the period being 18 months at P10,000/month rent. Under the lease,
SIHI guaranteed Carceller the exclusive right and option to purchase the said
lots within the lease period for the aggregate amount of P1.8M. Around 3 weeks
before the end of the lease period, SIHI informed Carceller of the impending
termination of the lease and the short period left for him to purchase. He begged
for an extension, but SIHI refused. Nevertheless, SIHI offered the property to
him for lease for another year, but this time, it also offered it for sale to the
public. Carceller thus sued SIHI for specific performance to compel SIHI to
 execute a Deed of Sale in his favor.
ISSUE: W/N Carceller may still exercise the option to purchase the property
HELD: YES. Even if Carceller failed to purchase the property within the said
period, still equity must intervene. He had introduced substantial improvements
thereon; to rule against him would cause damage to him—and SIHI does not
stand to gain much therefrom. SIHI clearly intended to sell the lot to him
considering that it was under financial distress, that is constantly reminded him
of the option and the impending deadline. The delay of 18 days is not
substantial. Carceller’s letter to SIHI expressing his intent to purchase the lot is
fair notice of intent to exercise the option despite the request for extension.
Carceller should thus be allowed to buy the lots.
Soriano v. Bautista – consideration is flexible, but even if it is not expressed, it
must be clear
- A consideration flowing from a mortgage is a valid consideration of an
option
Soriano v. Bautista, 6 SCRA 946 (1962)
FACTS: Spouses Bautista are the absolute and registered owners of a parcel of
land. In May 30, 1956, the said spouses entered into an agreement entitled
Kasulatan ng Sanglaan (mortgage) in favor of spouses Soriano for the amount
of P1,800. Simultaneously with the signing of the deed, the spouses Bautista
transferred the possession of the subject property to spouses Soriano. The
spouses Soriano have, since that date, been in possession of the property and
are still enjoying the produce thereof to the exclusion of all other persons
1. Sometime after May 1956, the spouses Bautista received from spouses
Soriano the sum of P450 pursuant to the conditions agreed upon in the
document. However, no receipt was issued. The said amount was returned by
the spouses Bautista
2. In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the
spouses Soriano have decided to purchase the subject property pursuant to par.
5 of the document which states that “…the mortgagees may purchase the said
land absolutely within the 2-year term of the mortgage for P3,900.”
3. Despite the receipt of the letter, the spouses Bautista refused to comply
with Soriano’s demand
4. As such, spouses Soriano filed a case, praying that they be allowed to
consign or deposit with the Clerk of Court the sum of P1,650 as the balance of
the purchase price of the land in question
5. The trial court held in favor of Soriano and ordered Bautista to execute a
deed of absolute sale over the said property in favor of Soriano.
6. Subsequently spouses Bautista filed a case against Soriano, asking the court
to order Soriano to accept the payment of the principal obligation and release
the mortgage and to make an accounting the harvest for the 2 harvest seasons
(1956-1957).
7. CFI held in Soriano’s favor and ordered the execution of the deed of sale
in their favor
8. Bautista argued that as mortgagors, they cannot be deprived of the right to
redeem the mortgaged property, as such right is inherent in and inseparable
from a mortgage.
ISSUE: WON spouses Bautista are entitled to redemption of subject property
HELD: No. While the transaction is undoubtedly a mortgage and contains the
customary stipulation concerning redemption, it carries the added special
provision which renders the mortgagor’s right to redeem defeasible at the
election of the mortgagees. There is nothing illegal or immoral in this as this is
allowed under Art 1479 NCC which states: “A promise to buy and sell a
determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise supported by a consideration apart
from the price.”
In the case at bar, the mortgagor’s promise is supported by the same
consideration as that of the mortgage itself, which is distinct from the
consideration in sale should the option be exercised. The mortgagor’s promise
was in the nature of a continuing offer, non-withdrawable during a period of 2
years, which upon acceptance by the mortgagees gave rise to a perfected
contract of sale.
TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY
OTHER PARTY HAS BEEN EXERCISED
The tender of P1,800 to redeem the mortgage by spouses Bautista was
ineffective for the purpose intended. Such tender must have been made after
the option to purchase had been exercised by spouses Soriano. Bautista’s offer
to redeem could be defeated by Soriano’s preemptive right to purchase within
the period of 2 years from May 30, 1956. Such right was availed of and spouses
 Bautista were accordingly notified by Soriano. Offer and acceptance converged
and gave rise to a perfected and binding contract of purchase and sale.
---------------
FACTS: Bautista spouses mortgaged their lot to Soriano, who took possession
thereof and cultivated the same. Pursuant to Par. 5 of their agreement, Soriano
decided to buy the lot. Bautista refused to sell claiming that being mortgagors,
they cannot be deprived of their right to redeem the property.
ISSUE: W/N Soriano may buy the mortgaged property of Bautista
HELD: YES. True that the transaction is a mortgage, which carried with it a
customary right of redemption. However, the mortgagor’s right to redeem was
rendered defeasible at the election of the mortgagees by virtue of Par. 5,
allowing them the option to purchase the said lot. There is nothing immoral or
illegal about such stipulation. It was supported by the same consideration as the
mortgage contract and constituted an irrevocable continuing offer within the
time stipulated. That being the case, Bautista spouses must be compelled to
honor the sale
Limson – distinction between option money and earnest money
Limson v. CA, 357 SCRA 209 (2001)
FACTS: This is a Petition for Review on Certiorari to review, reverse and set aside
the Decision of the Court of Appeals which reversed the Decision of the
Regional Trial Court. The petitioner likewise assails the Resolution of the
appellate court denying petitioner's Motion for Reconsideration.
Petitioner Lourdes Ong Limson and respondent spouses Lorenzo de Vera and
Asuncion Santos-de Vera agreed that petitioner would buy a parcel of land
owned by respondents. On 31 July 1978, petitioner paid P20,000 as "earnest
money"; respondents signed a receipt and gave her a 10-day option period to
purchase the property.
The parties agreed to meet on August 5 and August 11, but failed to
consummate the sale because the respondent spouses did not appear. Petitioner
soon learned that subject property was also under negotiation with respondent
spouses and with Sunvar Realty Development Corporation (SUNVAR). On 15
September 1978, Limson filed an affidavit of Adverse Claim with the Office of the
Registry of Deeds and informed SUNVAR. TCT N0. S-72377 was issued on
26 September 1978 in favor of SUNVAR with the adverse Claim of petitioner
annotated thereon.
Petitioner claimed that the Deed of Sale should be annulled, that TCT No. S-
72377 be canceled and ownership be restored to respondent spouses, and that
a Deed of Sale be executed in favor of her.
The Regional Trial Court rendered its Decision in favor of petitioner. On
appeal, the Court of Appeals completely reversed the decision of the trial court.
Petitioner timely filed a Motion for Reconsideration which was denied by the
Court of Appeals on 19 October 1998. Hence, this petition.
ISSUES: (1) Whether or not there was a perfected contract to sell between
petitioner and respondent spouses.
(2) Whether or not the P20,000 paid by Limson represented "earnest money".
RULING: (1) No, there was no perfected contract to sell. A scrutiny of the
facts as well as the evidence of the parties overwhelmingly leads to the
conclusion that the agreement between the parties was a contract of option and
not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which
the owner stipulates with another that the latter shall have the right to buy the
property at a fixed price within a time certain, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of the property the
right to sell or demand a sale. It is also sometimes called an "unaccepted offer."
An option is not itself a purchase, but merely secures the privilege to buy.8 It is
not a sale of property but a sale of right to purchase.9 It is simply a contract by
which the owner of property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time. He does not sell
his land; he does not then agree to sell it; but he does not sell something, i.e.,
the right or privilege to buy at the election or option of the other party.10 Its
distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract, and does not vest, transfer,
or agree to transfer, any title to, or any interest or right in the subject matter,
but is merely a contract by which the owner of the property gives the optionee
the right or privilege of accepting the offer and buying the property on certain
terms.11
On the other hand, a contract, like a contract to sell, involves the meeting of
minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service.12 Contracts, in general, are
perfected by mere consent,13 which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute.1
(2) No, the money paid by petitioner was not earnest money but option
money. "Earnest money" and "option money" are not the same but
distinguished thus; (a) earnest money is part of the purchase price, while option
money is the money given as a distinct consideration for an option contract; (b)
earnest money given only where there is already a sale, while option money
applies to a sale not yet perfected; and, (c) when earnest money is given, the
buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy,18 but may even forfeit it depending on the
terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of
the purchase price. Moreover, it was not shown that there was a perfected sale
between the parties where earnest money was given. Finally, when petitioner
gave the "earnest money" the Receipt did not reveal that she was bound to pay
the balance of the purchase price. In fact, she could even forfeit the money
given if the terms of the option were not met. Thus, the P20,000.00 could only
be money given as consideration for the option contract. Finally, the Receipt
provided for a period within which the option to buy was to be exercised, i.e.,
"within ten (10) days" from 31 July 1978.
On or before 10 August 1978, the last day of the option period, no affirmative
or clear manifestation was made by petitioner to accept the offer. Certainly,
there was no concurrence of private respondent spouses’ offer and petitioner’s
acceptance thereof within the option period. Consequently, there was no
perfected contract to sell between the parties.
On 11 August 1978 the option period expired and the exclusive right of
petitioner to buy the property of respondent spouses ceased.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals ordering the Register of Deeds of Makati City to lift the adverse claim
and such other encumbrances petitioners Lourdes Ong Limson may have filed
or caused to be annotated on TCT No. S-75377 is AFFIRMED, with
the MODIFICATION that the award of nominal and exemplary damages as
well as attorney’s fees is DELETED.
Sanchez the better doctrine
Sanchez v. Rigos, 45 SCRA 368 (1972)
FACTS: Nicolas Sanchez and Severina Rigos executed an instrument entitled
“Option toPurchase” wherein Mrs. Rigos agreed, promised and committed to
sell to Mr. Sancheza parcel of land for the amount of P1, 510. 00 within two
years from the date of the instrument, with the understanding that the said
option shall be deemed terminated and elapsed if Mr. Sanchez shall fail to
exercise his right to buy the property within the stipulated period.
Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed
to buy. But there is nothing in the contract to indicate that her agreement,
promise and undertaking is supported by a consideration distinct from the price
stipulated for the sale of the land. Mr. Sanchez has made several tenders of
payment in the said amount within the period before any withdrawal from the
contract has been made by Mrs. Rigos, but were rejected nevertheless.
ISSUE: Can an accepted unilateral promise to sell without consideration
distinct from the price be withdrawn arbitrarily?
RULING: No. An accepted promise to sell is an offer to sell when accepted
becomes a contract of sale.
 Since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise partakes, however, of
the nature of an offer to sell which, if accepted, results in a perfected contract
of sale. This view has the advantage of avoiding a conflict between Articles 1324
– on the general principles on contracts – and 1479 – on sales – of the Civil
Code.
Article 1324 – When the offeror has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
FACTS: Sanchez and Rigos executed an Option to Purchase where Rigos
agreed, promised, and committed to sell to Sanchez a parcel of land in Nueva
Ecija for P1,510. In spite of the repeated tenders made by Sanchez, Rigos
refused to sell the same. Thus, Sanchez consigned the amounts and filed a case
for specific performance. Rigos alleged that the contract between them was a
unilateral promise to sell, which is not supported by any consideration, hence,
it is not binding.
ISSUE: W/N there was a valid option contract
HELD: NO. The promisee (Sanchez) cannot compel the promissor (Rigos) to
comply with the promise unless the former can establish that the promise was
for a consideration. The burden of proof to establish the existence of the
consideration lies with Sanchez. Therefore, there was no valid option contract
in this case. However, an option without consideration is a mere offer, which is
not binding until accepted. But from the moment it is accepted before it is
withdrawn, a valid contract of sale arises. In this case, even though there was no
option contract, there was nevertheless an offer and acceptance enough to
constitute a valid contract of sale.
PNOC – distinction between option and sale
- Whether there was consideration for option
- “Should Keppel exercise its option to buy, Lustoveco could opt to
convert ….
- Court held it was not valid consideration for the option when in fact it is
for the sale
- Optionee/Offeree has the burden of proving a sale
- Even if there was no valid consideration for the option, because the
acceptance was done before the withdrawal, it led to the rist of a valid
contract of sale
Phil. National Oil Company v. Keppel Holdings, Inc., 798 SCRA 65 (2016)
FACTS:
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines
Holdings, Inc.4 (Keppel) entered into a lease agreement5 (the agreement) with
Luzon Stevedoring Corporation (Lusteveco) covering 11 hectares of land
located in Bauan, Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.6 At the option of Lusteveco, the rental fee could
be totally or partially converted into equity shares in Keppel.7
At the end of the 25-year Jease period, Keppel was given the "firm and
absolute option to purchase8the land for P4.09 million, provided that it
had acquired the necessary qualification to own land under Philippine
laws at the time the option is exercised.9 Apparently, when the lease
agreement was executed, less than 60% of Keppel's shareholding was Filipino-
owned, hence, it was not constitutionally qualified to acquire private lands in
the country.10
If, at the end of the 25-year lease period (or in 2001), Keppel remained
unqualified to own private lands, the agreement provided that the lease would
be automatically renewed for another 25 years.11Keppel was further allowed to
exercise the option to purchase the land up to the 30th year of the lease (or in
2006), also on the condition that, by then, it would have acquired the requisite
qualification to own land in the Philippines.12
Together with Keppel's lease rights and option to purchase, Lusteveco
warranted not to sell the land or assign its rights to the land for the duration of
the lease unless with the prior written consent of Keppel.13 Accordingly, when
the petitioner Philippine National Oil Corporation14 (PNOC) acquired the
land from Lusteveco and took over the rights and obligations under the
agreement, Keppel did not object to the assignment so long as the agreement
was annotated on PNOC's title.15 With PNOC's consent and cooperation, the
agreement was recorded as Entry No. 65340 on PNOC's Transfer of
Certificate of Title No. T-50724.16
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that at least
60% of its shares were now owned by Filipinos17 Consequently, Keppel
expressed its readiness to exercise its option to purchase the land. Keppel
reiterated its demand to purchase the land several times, but on every
occasion, PNOC did not favourably respond.18
To compel PNOC to comply with the Agreement, Keppel instituted
a complaint for specific performance with the RTC on 26 September 2003
against PNOC.19 PNOC countered Keppel's claims by contending that the
agreement was illegal for circumventing the constitutional prohibition against
aliens holding lands in the Philippines.20 It further asserted that the option
contract was void, as it was unsupported by a separate valuable
consideration.21 It also claimed that it was not privy to the agreement.22
After due proceedings, the RTC rendered a decision23in favour of Keppel
and ordered PNOC to execute a deed of absolute sale upon payment by
Keppel of the purchase price of P4.09 million.24
PNOC elevated the case to the CA to appeal the RTC decision.25 Affirming
the RTC decision in toto, the CA upheld Keppel's right to acquire the
land.26 It found that since the option contract was embodied in the agreement
- a reciprocal contract - the consideration was the obligation that each of the
contracting party assumed.27 Since Keppel was already a Filipino-owned
corporation, it satisfied the condition that entitled it to purchase the land.28
Failing to secure a reconsideration of the CA decision,29 PNOC filed the
present Rule 45 petition before this Court to assail the CA rulings.
THE PARTIES' ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of the
agreement. It contends that the terms of the agreement amounted to a virtual
sale of the land to Keppel who, at the time of the agreement's enactment, was
a foreign corporation and, thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease that was
automatically renewable for another 25 years30; (b) the option to purchase the
land for a nominal consideration of P100.00 if the option is exercised anytime
between the 25th and the 30th year of the lease31; and (c) the prohibition
imposed on Lusteveco to sell the land or assign its rights therein during the
lifetime of the lease.32Taken together, PNOC submits that these provisions
amounted to a virtual transfer of ownership of the land to an alien which act
the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease contract
in Philippine Banking Corporation v. Lui She,33 which the Court struck down as
unconstitutional. In Lui She, the lease contract allowed the gradual divestment
of ownership rights by the Filipino owner-lessor in favour of the foreigner-
lessee.34The arrangement in Lui She was declared as a scheme designed to
enable the parties to circumvent the constitutional prohibition.35 PNOC posits
that a similar intent is apparent from the terms of the agreement with Keppel
and accordingly should also be nullified.36
PNOC additionally contends the illegality of the option contract for lack of a
separate consideration, as required by Article 1479 of the Civil Code.37 It
claims that the option contract is distinct from the main contract of lease and
must be supported by a consideration other than the rental fees provided in
the agreement.38
On the other hand, Keppel maintains the validity of both the agreement and
the option contract it contains. It opposes the claim that there was "virtual
sale" of the land, noting that the option is subject to the condition that Keppel
becomes qualified to own private lands in the Philippines.39 This condition
ripened in 2000, when at least 60% of Keppel's equity became Filipino-owned.
Keppel contends that the agreement is not a scheme designed to circumvent
the constitutional prohibition. Lusteveco was not proscribed from alienating
its ownership rights over the land but was simply required to secure Keppel's
prior written consent.40 Indeed, Lusteveco was able to transfer its interest to
PNOC without any objection from Keppel.41
Keppel also posits that the requirement of a separate consideration for an
option to purchase applies only when the option is granted in a separate
contract.42 In the present case, the option is embodied in a reciprocal contract
and, following the Court's ruling in Vda. De Quirino v. Palarca,43 the option is
supported by the same consideration supporting the main contract.
From the parties' arguments, the following ISSUES emerge:
First, the constitutionality of the Agreement, i.e., whether the terms of the
Agreement amounted to a virtual sale of the land to Keppel that was designed
to circumvent the constitutional prohibition on aliens owning lands in the
Philippines.
Second, the validity of the option contract, i.e., whether the option to purchase
the land given to Keppel is supported by a separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue emerges - one
that was not considered by the lower courts, but is critical in terms of
determining Keppel's right to own and acquire full title to the
land, i.e., whether Keppel's equity ownership meets the 60% Filipino-owned
capital requirement of trie Constitution, in accordance with the Court's ruling
in Gamboa v. Teves.44
THE COURT'S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in Filipino hands
is the policy consistently adopted in all three of our constitutions.45 Under the
1935,46 1973,47 and 198748 Constitutions, no private land shall be transferred,
assigned, or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain. Consequently, only
Filipino citizens, or corporations or associations whose capital is 60% owned
by Filipinos citizens, are constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not only outright
conveyances of land to foreigners,49: but also arrangements where the rights of
ownership were gradually transferred to foreigners.50 In Lui Shui,51 we
considered a 99-year lease agreement, which gave the foreigner-lessee the
option to buy the land and prohibited the Filipino owner-lessor from selling
or otherwise disposing the land, amounted to - a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right
to enjoy the land (Jus possidendi, jus utendi, jus fruendi, and jus abutendi) but also of
the right to dispose of it (jus disponendi) — rights the sum total of which make
up ownership.52 [Emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the
agreement's terms, but a review of the overall circumstances leads us to reject
PNOC's claim.
The agreement was executed to enable Keppel to use the land for
its shipbuilding and ship repair business.53 The industrial/commercial
purpose behind the agreement differentiates the present case from Lui
She where the leased property was primarily devoted to residential
use.54 Undoubtedly, the establishment and operation of a shipyard business
involve significant investments. Keppel's uncontested testimony showed that
it incurred P60 million costs solely for preliminary activities to make the land
suitable as a shipyard, and subsequently introduced improvements worth P177
million.55 Taking these investments into account and the nature of the
business that Keppel conducts on the land, we find it reasonable that the
agreement's terms provided for an extended duration of the lease and a
restriction on the rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely denied its
ownership rights during the course of the lease. It could dispose of the lands
or assign its rights thereto, provided it secured Keppel's prior written
consent.57 That Lusteveco was able to convey the land in favour of PNOC
during the pendency of the lease58 should negate a finding that the agreement's
terms amounted to a virtual transfer of ownership of the land to Keppel.

II. The validity of the option contract
II.A An option contract must be supported by a separate
consideration that is either clearly specified as such in the
contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the
Civil Code:
Article 14791 x x x An accepted promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is supported
by a consideration distinct from the price.
An option contract is a contract where one person (the offeror/promissor)
grants to another person (the offeree/promisee) the right or privilege to buy
(or to sell) a determinate thing at a fixed price, if he or she chooses to do so
within an agreed period.59
As a contract, it must necessarily have the essential elements of subject matter,
consent, and consideration.60 Although an option contract is deemed a
preparatory contract to the principal contract of sale,61 it is separate and
distinct therefrom,62 thus, its essential elements should be distinguished from
those of a sale.63
In an option contract, the subject matter is the right or privilege to buy (or to
sell) a determinate thing for a price certain,64 while in a sales contract, the
subject matter is the determinate thing itself.65 The consent in an option
contract is the acceptance by the offeree of the offerer's promise to sell (or to
buy) the determinate thing, i.e., the offeree agrees to hold the right or privilege to
buy (or to sell)within a specified period. This acceptance is different from the
acceptance of the offer itself whereby the offeree asserts his or her right or
privilege to buy (or to sell), which constitutes as his or her consent to the sales
contract. The consideration in an option contract may be anything of value,
unlike in a sale where the purchase price must be in money or its
equivalent.66 There is sufficient consideration for a promise if there is any
benefit to the offeree or any detriment to the offeror.67
In the present case, PNOC claims the option contract is void for want of
consideration distinct from the purchase price for the land.68 The option is
incorporated as paragraph 5 of the Agreement and reads as:
If within the period of the first [25] years [Keppel] becomes qualified
to own land under the laws of the Philippines, it has the firm and
absolute option to purchase the above property for a total price of
[P-4,090,000.00] at the end of the 25th year, discounted at 16%
annual for every year before the end of the 25th year, which amount
may be converted into equity of [Keppel] at book value prevailing at
the time of sale, or paid in cash at Lusteveco's option.
However, if after the first [25] years, [Keppel] is still not qualified to
own land under the laws of the Republic of the Philippines,
[Keppel's] lease of the above stated property shall be automatically
renewed for another [25] years, under the same terms and conditions
save for the rental price which shall be for the sum of
P4,090,000.00... and which sum may be totally converted into equity
of [Keppel] at book value prevailing at the time of conversion, or
paid in cash at Lusteveco's option.
If anytime within the second [25] years up to the [30th] year from the
date of this agreement, [Keppel] becomes qualified to own land under
the laws of the Republic of the Philippines, [Keppel] has the firm and
absolute option to buy and Lusteveco hereby undertakes to sell the
above stated property for the nominal consideration of
[P100.00.00]...69
Keppel counters that a separate consideration is not necessary to support its
option to buy because the option is one of the stipulations of the lease
contract. It claims that a separate consideration is required only when an
option to buy is embodied in an independent contract.70 It relies on Vda. de
Quirino v. Palarca,71 where the Court declared that the option to buy the leased
property is supported by the same consideration as that of the lease itself: "in
reciprocal contracts [such as lease], the obligation or promise of each party is
the consideration for that of the other.72
In considering Keppel's submission, we note that the Court's ruling in 1969
in Vda. de Quirino v. Palarcahas been taken out of context and erroneously
applied in subsequent cases. In 2004, through Bible Baptist Church v. CA73 we
revisited Vda. de Quirino v. Palarca and observed that the option to buy given to
the lessee Palarca by the lessor Quirino was in fact supported by a separate
consideration: Palarca paid a higher amount of rent and, in the event that he
does not exercise the option to buy the leased property, gave Quirino the
option to buy the improvements he introduced thereon. These additional
concessions were separate from the purchase price and deemed by the Court
as sufficient consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that
the mere inclusion of an option contract in a reciprocal lease contract provides
it with the requisite separate consideration for its validity. The reciprocal
contract should be closely scrutinized and assessed whether it contains
additional concessions that the parties intended to constitute as a
consideration for the option contract, separate from that of the purchase
price.
In the present case, paragraph 5 of the agreement provided that should
Keppel exercise its option to buy, Lusteveco could opt to convert the
purchase price into equity in Keppel. May Lusteveco's option to convert the price for
shares be deemed as a sufficient separate consideration for Keppel's option to buy?
As earlier mentioned, the consideration for an option contract does not need
to be monetary and may be anything of value.74 However, when the
consideration is not monetary, the consideration must be clearly
specified as such in the option contract or clause.75
In Villamor v. CA,76 the parties executed a deed expressly acknowledging that
the purchase price of P70.00 per square meter "was greatly higher than the
actual reasonable prevailing value of lands in that place at that time."77 The
difference between the purchase price and the prevailing value constituted as
the consideration for the option contract. Although the actual amount of the
consideration was not stated, it was ascertainable from the contract whose
terms evinced the parties' intent to constitute this amount as consideration for
the option contract.78 Thus, the Court upheld the validity of the option
contract.79 In the light of the offeree's acceptance of the option, the Court
further declared that a bilateral contract to sell and buy was created and that
the parties' respective obligations became reciprocally demandable.80
When the written agreement itself does not state the consideration for
the option contract, the offeree or promisee bears the burden of proving
the existence of a separate consideration for the option.81 The offeree
cannot rely on Article 1354 of the Civil Code,82 which presumes the existence
of consideration, since Article 1479 of the Civil Code is a specific provision on
option contracts that explicitly requires the existence of a consideration
distinct from the purchase price.83
In the present case, none of the above rules were observed. We find nothing
in paragraph 5 of the Agreement indicating that the grant to Lusteveco of the
option to convert the purchase price for Keppel shares was intended by the
parties as the consideration for Keppel's option to buy the land; Keppel itself
as the offeree presented no evidence to support this finding. On the contrary,
the option to convert the purchase price for shares should be deemed part of
the consideration for the contract of sale itself, since the shares are merely an
alternative to the actual cash price.
There are, however cases where, despite the absence of an express intent in
the parties' agreements, the Court considered the additional concessions
stipulated in an agreement to constitute a sufficient separate consideration for
the option contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the option to buy
the land assumed .the obligation to pay not only her rent as sub-lessee, but
also the rent of the sub-lessor (Ariola) to the primary lessor (Manila Railroad
Company).85 In other words, Teodoro paid an amount over and above the
amount due for her own occupation of the property, and this amount was
found by the Court as sufficient consideration for the option contract.86
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank,
allowing the latter to foreclose the mortgage.88 Since the spouses Dijamco did
not exercise their right to redeem, the bank consolidated its ownership over
the mortgaged property.89 The spouses Dijamco later proposed to purchase
the same property by paying a purchase price of P622,095.00 (equivalent to
their principal loan) and a monthly amount of P13,478.00 payable for 12
months (equivalent to the interest on their principal loan). They further stated
that should they fail to make a monthly payment, the proposal should be
automatically revoked and all payments be treated as rentals for their
continued use of the property.90 The Court treated the spouses Dijamco's
proposal to purchase the property as an option contract, and the consideration
for which was the monthly interest payments.91 Interestingly, this ruling was
made despite the categorical stipulation that the monthly interest payments
should be treated as rent for the spouses Dijamco's continued possession and
use of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where the Court
refused to consider the additional concessions stipulated in agreements as
separate consideration for the option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in
advance P84,000.00 to the lessor in order to free the property from an
encumbrance. The lessee claimed that the advance payment constituted as the
separate consideration for its option to buy the property.93 The Court,
however, disagreed noting that the P84,000.00 paid in advance was eventually
offset against the rent due for the first year of the lease, "such that for the
entire year from 1985 to 1986 the [Bible Baptist Church] did not pay monthly
rent."94 Hence, the Court refused to recognize the existence of a valid option
contract.95
What Teodoro, Dijamco, and Bible Baptist Church show is that the determination
of whether the additional concessions in agreements are sufficient to support
an option contract, is fraught with danger; in ascertaining the parties' intent on
this matter, a court may read too much or too little from the facts before it.
For uniformity and consistency in contract interpretation, the better rule to
follow is that the consideration for the option contract should be clearly
specified as such in the option contract or clause. Otherwise, the offeree
must bear the burden of proving that a separate consideration for the
option contract exists.
Given our finding that the Agreement did not categorically refer to any
consideration to support Keppel's option to buy and for Keppel's failure to
present evidence in this regard, we cannot uphold the existence of an option
contract in this case.
II. An option, though unsupported by a separate consideration,
B. remains an offer that, if duly accepted, generates into a contract
to sell where the parties' respective obligations become
reciprocally demandable
The absence of a consideration supporting the option contract, however, does
not invalidate an offer to buy (or to sell). An option unsupported by a
separate consideration stands as an unaccepted offer to buy (or to sell)
which, when properly accepted, ripens into a contract to sell. This is the
rule established by the Court en banc as early as 1958 in Atkins v. Cua Hian
Tek,96 and upheld in 1972 in Sanchez v. Rigos.97
Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and
1479 of the Civil Code, which are quoted below:
Article 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
Article 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price, [emphases supplied]
The Court en banc declared that there is no distinction between these two
provisions because the scenario contemplated in the second paragraph of
Article 1479 is the same as that in the last clause of Article 1324.98 Instead of
finding a conflict, Sanchez v. Rigos harmonised the two provisions, consistent
with the established rules of statutory construction.99
Thus, when an offer is supported by a separate consideration, a valid
option contract exists, i.e., there is a contracted offer100 which the offerer
cannot withdraw from without incurring liability in damages.
On the other hand, when the offer is not supported by a separate
consideration, the offer stands but, in the absence of a binding contract, the
offeror may withdraw it any time.101 In either case, once the acceptance of the
offer is duly communicated before the withdrawal of the offer, a bilateral
contract to buy and sell is generated which, in accordance with the first
paragraph of Article 1479 of the Civil Code, becomes reciprocally
demandable.102
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v.
AGPC,103 which declared that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by a consideration... In other words, an
accepted unilateral promise can only have a binding effect if supported
by a consideration, which means that the option can still be withdrawn,
even if accepted, if the same is not supported by any
consideration.104 [Emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of
the Civil Code is distinct from Article 1324 of the Civil Code and is a
provision that specifically governs options to buy (or to sell).105 As mentioned,
Sanchez v. Rigos found no conflict between these two provisions and
accordingly abandoned the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning
the Sanchez ruling, subsequent cases reverted back to the Southwestern Sugar
doctrine.106 In 2009, Eulogio v Apeles107 referred to Southwestern Sugar v. AGPC as
the controlling doctrine108 and, due to the lack of a separate consideration,
refused to recognize the option to buy as an offer that would have resulted in
a sale given its timely acceptance by the offeree. In 2010, Tuazon v. Del Rosario-
Suarez109 referred to Sanchez v. Rigos but erroneously cited as part of its ratio
decidendi that portion of the Southwestern Sugar doctrine that Sanchez had
expressly abandoned.110
Given that! the issue raised in the present case involves the application of
Article 1324 and 1479 of the Civil Code, it becomes imperative for the Court
[en banc] to clarify and declare here which between Sanchez and Southwestern
Sugar is the controlling doctrine.
The Constitution itself declares that "no doctrine or principle of law laid down
by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc.111Sanchez v. Rigos was an en
banc decision which was affirmed in 1994 in Asuncion v. CA,112also an en
banc decision, while the decisions citing the Southwestern Sugar doctrine are all
division cases.113 Based on the constitutional rule (as well as the inherent logic
in reconciling Civil Code provisions), there should be no doubt that Sanchez
v. Rigos remains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a
consideration separate from the purchase price, the option constitutes as an
offer to buy or to sell, which may be withdrawn by the offeror at any time
prior to the communication of the offeree's acceptance. When the offer is duly
accepted, a mutual promise to buy and to sell under the first paragraph of
Article 1479 of the Civil Code ensues and the parties' respective obligations
become reciprocally demandable.
Applied to the present case, we find that the offer to buy the land was
timely accepted by Keppel.
As early as 1994, Keppel expressed its desire to exercise its option to buy the
land. Instead of rejecting outright Keppel's acceptance, PNOC referred the
matter to the Office of the Government Corporate Counsel (OGCC). In its
Opinion No. 160, series of 1994, the OGCC opined that Keppel "did not yet
have the right to purchase the Bauan lands."114 On account of the OGCC
opinion, the PNOC did not agree with Keppel's attempt to buy the
land;115 nonetheless, the PNOC made no categorical withdrawal of the offer
to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion and duly
communicated its acceptance of the offer to buy to PNOC.116 Keppel met
with the board of directors and officials of PNOC who interposed no
objection to the sale.117 It was only when the amount of purchase price was
raised that the conflict between the parties arose,118 with PNOC backtracking
in its position and questioning the validity of the option.119
Thus, when Keppel communicated its acceptance, the offer to purchase the
Bauan land stood, not having been withdrawn by PNOC. The offer having
been duly accepted, a contract to sell the land ensued which Keppel can
rightfully demand PNOC to comply with.

III. Keppel's constitutional right to acquire full title to the land
Filipinization is the spirit that pervades the constitutional provisions on
national patrimony and economy. The Constitution has reserved the
ownership of public and private lands,120 the ownership and operation of
public utilities,121 and certain areas of investment122 to Filipino citizens,
associations, and corporations. To qualify, sixty per cent (60%) of the
association or corporation's capital must be owned by Filipino citizens.
Although the 60% Filipino equity proportion has been adopted in our
Constitution since 1935, it was only in 2011 that the Court interpreted what
the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino nationals." 124 Clarifying the ruling, the Court decreed that
the 60% Filipino ownership requirement applies separately to each class of
shares, whether with or without voting rights,125 thus:
Applying uniformly the 60-40 ownership requirement in favour of
Filipino citizens to each class of shares, regardless of differences in
voting rights, privileges and restrictions, guarantees effective Filipino
control of public utilities, as mandated by the Constitution.126
Although the ruling was made in the context of ownership and operation of
public utilities, the same should be applied to the ownership of public and
private lands, since the same proportion of Filipino ownership is required and
the same nationalist policy pervades.
The uncontested fact is that, as of November 2000, Keppel's capital is 60%
Filipino-owned.127 However, there is nothing in the records showing the
nature and composition of Keppel's shareholdings, i.e.,whether its
shareholdings are divided into different classes, and 60% of each share class is
legally and beneficially owned by Filipinos - understandably because when
Keppel exercised its option to buy the land in 2000, the Gamboa ruling had not
yet been promulgated. The Court cannot deny Keppel its option to buy the
land by retroactively applying the Gamboa ruling without violating Keppel's
vested right. Thus, Keppel's failure to prove the nature and composition of its
shareholdings in 2000 could not prevent it from validly exercising its option to
buy the land.
Nonetheless, the Court cannot completely disregard the effect of
the Gamboa ruling; the 60% Filipino equity proportion is a continuing
requirement to hold land in the Philippines. Even in Gamboa, the Court
prospectively applied its ruling, thus enabling the public utilities to meet the
nationality requirement before the Securities and Exchange Commission
commences administrative investigation and cases, and imposes sanctions for
noncompliance on erring corporations.128 In this case, Keppel must be
allowed to prove whether it meets the required Filipino equity ownership and
proportion in accordance with the Gamboa ruling before it can acquire full title
to the land.
In view of the foregoing, the Court AFFIRMS the decision dated 19
December 2011 and the resolution dated 14 May 2012 of the CA in CA-G.R.
CV No. 86830 insofar as these rulings uphold the respondent Keppel
Philippines Holdings, Inc.'s option to buy the land, and REMANDS the case
to the Regional Trial Court of Batangas City, Branch 84, for the determination
of whether the respondent Keppel Philippines Holdings, Inc. meets the
required Filipino equity ownership and proportion in accordance with the
Court's ruling in Gamboa v. Teves, to allow it to acquire full title to the land.
SO ORDERED.
Vazquez v. CA, 199 SCRA 102
FACTS: The Vallejera spouses sought to recover from Vasquez an agricultural
lot, which they previously sold to him. Along with the previous execution of a
Deed of Sale, the parties also executed a Right of Repurchase allowing Vallejera
to repurchase the said estate. Vasquez resisted the redemption arguing that the
option to buy was not supported by any consideration—and thus not binding
upon him.
ISSUE: W/N there was a valid option contract
HELD: NO. It is apparent that the Right to Repurchase was not supported by
any consideration. Thus, in order for the doctrine under Sanchez v Rigos to
apply, giving rise to a valid contract of sale, it must be shown that the promissee
 (Vallejera) accepted the right of repurchase before it was withdrawn by Vasquez.
In this case, no such acceptance was made. The vendor a retro (Vallejera) must
make actual and simultaneous tender of payment and consignation. Mere
expressions of readiness and willingness to repurchase are insufficient. Their
ineffectual acceptance allowed Vasquez to withdraw the offer through his
refusal to sell the lot. Vasquez thus cannot be compelled to sell the lot.
Yao – one wrong doctrine
Yao Ka Sin Trading v. CA, 209 SCRA 323 (1991)
FACTS: In 1973, Constancio Maglana, president of Prime White Cement
Corporation, sent an offer letter to Yao Ka Sin Trading. The offer states that
Prime White is willing to sell 45,000 bags of cement at P24.30 per bag. The offer
letter was received by Yao Ka Sin’s manager, Henry Yao. Yao accepted the letter
and pursuant to the letter, he sent a check in the amount of P243,000.00
equivalent to the value of 10,000 bags of cement. However, the Board of
Directors of Prime White rejected the offer letter sent by Maglana but it
considered Yao’s acceptance letter as a new contract offer hence the Board sent
a letter to Yao telling him that Prime White is instead willing to sell only 10,000
bags to Yao Ka Sin and that he has ten days to
reply; that if no reply is made by Yao then they will consider it as an acceptance
and that thereafter Prime White shall deposit the P243k check in its account
and then deliver the cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply
with what Yao Ka Sin considered as the true contract, i.e., 45,000 bags at P24.30
per bag. Prime White in its defense averred that although Maglana is empowered
to sign contracts in behalf of Prime White, such contracts are still subject to
approval by Prime White’s Board, and then it still requires further approval by
the National Investment and Development Corporation (NIDC), a government
owned and controlled corporation because Prime White is a subsidiary of
NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract
because it was made under the apparent authority of Maglana. The trial court
ruled in favor of Yao Ka Sin. The Court of Appeals reversed the trial court.
ISSUE: Whether or not the president of a corporation is clothed with apparent
authority to enter into binding contracts with third persons without the
authority of the Board.
HELD: No. The Board may enter into contracts through the president. The
president may only enter into contracts upon authority of the Board. Hence,
any agreement signed by the president is subject to approval by the Board.
Unlike a general manager (like the case of Francisco vs GSIS), the president has
no apparent authority to enter into binding contracts with third persons.
Further, if indeed the by-laws of Prime White did provide Maglana with
apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner,
by which the corporation holds out an officer or agent as having power to act
or, in other words, the apparent authority with which it clothes him to act in
general or (2) acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope of his
ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because
Yao Ka Sin’s failure to respond constitutes an acceptance, per stated in the letter
itself – which was not contested by Henry Yao during trial.
Ang Yu Asuncion v. CA, 238 SCRA 602 (1994)
FACTS: The Unijeng spouses owned certain residential and commercial spaces
leased by Ang Yu. They offered to sell the said units to Ang Yu on several
occasions and for P6M. Ang Yu made a counter offer for P5M. The Unijeng
spouses asked Ang Yu to specify his terms in writing but the latter failed to do
so. They failed to arrive at any definite agreement. When Ang Yu discovered
that the spouses were planning to sell the property to others, he sued them for
specific performance. While the case was pending, the spouses sold the units to
Buen Realty for P15M.
ISSUE: W/N there was a perfected contract of sale between Unijeng and Ang
Yu
HELD: NO. There was no perfected contract of sale yet since there was yet
any meeting of the minds. Thus, there is no ground for specific performance.
During the negotiation stage, any party may withdraw the offer made—
especially if it was not supported by any consideration.
An Option Contract of a Right of First Refusal is separate and distinct from the
actual contract of sale— which is the basis for specific performance. The
remedy available to Any Yu, in case the withdrawal was made capriciously and
arbitrarily, would be to sue on the basis of abuse of right. In case there was an
option contract, timely acceptance would create an obligation to sell on the part
of the vendor; but no such circumstance attends in this case.
----------------
Topic: Sales; Contract of sale v. Contract to sell; remedies for violation of right
of first refusal
Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial
spaces owned by the Unjiengs. They have been leasing the property and
possessing it since 1935 and have been paying rentals.
In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property
was being sold and that Petitioners were being given priority to acquire them
(Right of First Refusal). They agreed on a price of P5M but they had not yet
agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice,
asking them to specify the terms and conditions for the sale but received no
reply. Later, the petitioners found out that the property was already about to be
sold, thus they instituted this case for Specific Performance [of the right of first
refusal].
The Trial Court dismissed the case. The trial court also held that the Unjieng’s
offer to sell was never accepted by the Petitioners for the reason that they did
not agree upon the terms and conditions of the proposed sale, hence, there was
no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million
or below, plaintiffs will have the right of first refusal.
The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, in 1990, the property was sold to De Buen Realty, Private
Respondent in this case. The title to the property was transferred into the name
of De Buen and demanded that the Petitioners vacate the premises.
Because of this, Petitioners filed a motion for execution of the CA judgement.
At first, CA directed the Sheriff to execute an order directing the Unjiengs to
issue a Deed of Sale in the Petitioner’s favour and nullified the sale to De Buen
Realty. But then, the CA reversed itself when the Private Respondents
Appealed.
Issues:
1. Whether or not the Contract of Sale is perfected by the grant
of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in
an action for Specific Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of
Sale under Art. 1458 or an option under Par. 2 Art 1479 or an offer
under Art. 1319. In a Right of First Refusal, only the object of the
contract is determinate. This means that no vinculum juris is created
between the seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between
the parties, a Right of First Refusal may not be enforced through an
action for specific performance. Its conduct is governed by the law on
human relations under Art. 19-21 of the Civil Code and not by contract
law.
Therefore, the Supreme Court held that the CA could not have decreed at the
time the execution of any deed of sale between the Unjiengs and Petitioners.
- Option here remains unenforceable because there was no price
Eulogio v. Sps. Epeles, G.R. No. 167884, January 20, 2009
FACTS: The spouses Apeles leased the property, a house and lot situated in
Quezon City, to Enrico Eulogio after his father's death and he succeeded as
lessor of the said property. Eulogio and the spouses Apeles later entered into a
Contract of Lease with Option to Purchase which afforeded Eulogio the option
of purchasing the property for a price not exceeding P1.5 million, on or before
the expiration of the 3 year lease period. Before the expiration of the lease
period Eulogio tried to purchase the property by communicating with Luz
Apeles but the spouses ignored him. Eugolio then filed an action which is
founded on the contract allowing him to acquire ownership of the property after
paying the agreed amount.

ISSUE: Whether or not Eugolio has the right to acquire ownership of the
property.
HELD: No. According to the contract the option is not of itself a purchase but
merely secures a priviledge to buy. According to article 1479 of the Civil Code,
'an accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the prommisor if the promise is supported by a
consideration from the price'. In the case of Eulogio, no consideration was
given by him to the spouses for the option of the contract.
Villamor – option must be exercised within 10 years of execution (prescription)
Villamor v. Court of Appeals, 202 SCRA 607 (1991)
FACTS: The Villamors purchased from Macaria 1⁄2 of the latter’s land for a
price considerably higher than the prevailing market price. They then executed
a Deed of Option stating that the only reason why the Villamors agreed to
purchase the said lot is because Macaria agreed to confer upon them the
exclusive right to purchase the other half of the land. Such sale under the deed
may be imposed whenever the need for the sale arises on the part of either party.
Macaria sought to repurchase the land, but the Villamors refused. Instead, the
Villamors exercised their option to purchase the other half of the property.
Macaria refused, thus the Villamors filed a case for specific performance.
Macaria averred that the option is void for lack of consideration.
ISSUE: W/N the option contract is void for lack of consideration
HELD: NO. The Option Contract is supported by a consideration—that being
the difference of the agreed price and the market price of the other half of the
land, which was sold to the Villamors. Thus, it is valid and may be enforced by
the Villamors. The consideration may consist of anything of value.
The option was, in fact, the only reason why they purchased the other half for
an expensive price. Since the Villamors exercised their option, this is
tantamount to an acceptance of the offer—a valid and obligatory contract of
sale was thus perfected.
- Option need not be accompanied by actual payment of price
- Need only to say you are exercising your option
Nietes v. CA, 46 SCRA 654 (1972)
FACTS: Nietes leased from Dr. Garcia the Angeles Educational Institute; the
contract contained an Option to Buy the land and school buildings within the
period of the lease. It also stipulated that the unused payment will be applied to
the purchase price of the school. Nietes paid Garcia certain sums in excess of
the rent, which Garcia acknowledged as forming partial payment of the
purchase price of the property. Later on, Garcia, through counsel, wrote Nietes
informing him of his decision to rescind the contract due to certain violations
of the contract—such as poor maintenance, lack of inventory of school
equipment, and the use of another name for the said school. Nietes replied by
informing Garcia that he decided to exercise his Option to Buy, but Garcia
refused to sell. Nietes thereafter deposited the balance of the price to Agro-
Industrial Bank, but he later withdrew the said amounts. CA ruled in favor of
Garcia stating that the full purchase price must be paid before the Option to
Buy may be exercised. Thus, Nietes brought the matter to the SC.
ISSUE: W/N actual payment is needed before one may exercise the option to
buy
HELD: NO. There is nothing in the contract that required Nietes to pay the
full price before he could exercise the option. It was sufficient that he informed
Garcia of his choice and that he was at that time ready to pay. The exercise of
the option need not be coupled with actual payment so long as such payment is
made upon the fulfillment of the owner’s undertaking to deliver the property.
This is based on the principle that such option contracts involve reciprocal
obligations—and one does not incur delay if the other party fails or refuses to
comply with his respective obligation. That being the case, there was no need
for Nietes to deposit the said amounts—and his withdrawal thereof does not
affect his right.
FACTS: Petitioner Aquilino Nietes and respondent Dr.Pablo Garcia entered a
“Contract of Lease and Option to Buy” where the latter agreed to lease his
Angeles Educational Institute to the former.
The rent is set to P5000 per year up to 5 years and that the LESSOR agrees to
give the LESSEE an option to buy the land and the school building, for
P100,000 within the period of the Contract of Lease.
Nietes paid Garcia P2200 on Dec.16, 1962 for partial payment on the purchase
of the property. Through their lawyers, Garcia decided to rescind the contract
while Nietes expresses his intention to buy the property.
Nietes also deposited 84K to a bank corresponding to the balance for the
purchase of the property.
ISSUE: WON Nietes can aval of his option to buy the property.
HELD: Nietes can avail of the option to buy because he already express his
intention to buy the property before the termination of the contract. The
contention of the respondent that the full price of the property should first be
paid before the option could be exercised is of no merit.
The contract doesn’t provide such stipulation and as such, the provision of
reciprocal obligations in oblicon should prevail. Notice of the creditor's decision
to exercise his option to buy need not be coupled with actual payment of the
price, so long as this is delivered to the owner of the property upon performance
of his part of the agreement.
Nietes had validly and effectively exercised his option to buy the property of
Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from
Mrs. Nietes of the sum of P2,200 then delivered by her "in partial payment on
the purchase of the property" described in the "Contract of Lease with Option
to Buy"
3. Distinguishing Option From Right of First Refusal –
Tuazon v. del Rosario-Suarez, G.R. No. 168325, December 3, 2010
FACTS:
1. Respondent Lourdes Q. Del Rosario-Suarez was the owner of a parcel of
land in Quezon City. Petitioner Roberto D. Tuazon and Lourdes
executed a Contract of Lease over the land for a period of three years.
2. During the effectivity of the lease, Lourdes sent a letter to Roberto where
she offered to sell to the latter subject parcel of land. She pegged the price
at P37,541,000.00 and gave him two years to decide on the offer.
3. More than four months after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to the De Leons. The new owners
notified Roberto to vacate the premises.
4. Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer against him. The MeTC rendered a Decision ordering Roberto
to vacate the property for non-payment of rentals and expiration of the
contract.
5. While the ejectment case was on appeal, Roberto filed with the RTC of
Quezon City a Complaint for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary Injunction
against Lourdes and the De Leons.
6. The court declared the Deed of Absolute Sale made by Lourdes in favor
of the De Leons as valid and binding. The offer made by Lourdes to
Roberto did not ripen into a contract to sell because the price offered by
the former was not acceptable to the latter. The offer made by Lourdesis
no longer binding and effective at the time she decided to sell the subject
lot to the De Leons because the same was not accepted by Roberto.
7. The CA affirmed, hence this petition.
ISSUE: Whether or not Respondent violated Petitioners right to buy
subject property under the principle of "right of first refusal"
RULING: No. It was merely an option contract.
1. This case involves an option contract and not a contract of a right of
first refusal. An option contract is entirely different and distinct from
a right of first refusal in that in the former, the option granted to the
offeree is for a fixed period and at a determined price.
2. It is clear that the offer embodies an option contract as it grants
Roberto a fixed period of only two years to buy the subject property at
a price certain of P37,541,000.00.
3. It is undisputed that Roberto did not accept the terms stated in the
letter of Lourdes as he negotiated for a much lower price.
4. Robertos act of negotiating for a much lower price was a counter-offer
and is therefore not an acceptance of the offer of Lourdes.
5. The counter-offer of Roberto for a much lower price was not accepted
by Lourdes. There is therefore no contract that was perfected between
them with regard to the sale of subject property.
 6. Roberto, thus, does not have any right to demand that the property be
sold to him at the price for which it was sold to the De Leons neither
does he have the right to demand that said sale to the De Leons be
annulled.
DOCTRINE: An option contract is entirely different and distinct from a right
of first refusal in that in the former, the option granted to the offeree is for a
fixed period and at a determined price. It is clear that the offer embodies an
option contract as it grants Roberto a fixed period of only two years to buy the
subject property at a price certain ofP37,541,000.00.
PUP – distinction between option and RFR
- Can an RFR subsist even after the expiration of the lease period? Yes. It’s
how RFRs are couched. After a period expires, I may buy a property from
you if you decide to sell.
- RFR needs a separate consideration
Equatorial – RFR is an offer to match refusal and the right to buy a property
- Does not exclude seller from receiving offers from others, but gives you
the right to match those offers
Ang Yu – source of damage is contract
Parañaque Kings – whatever price was offered to others must also be offered to
you as lessee
Polytechnic University of the Philippines v. Golden Horizon Realty
Corporation, 615 SCRA 478, (2010)
FACTS: Petitioner NDC (National Development Corp.) a GOCC owned &
had in its disposal a 10 hectar property which is the NDC Compound.
A portion of which was leased to private respondent FIRESTONE
CORPORATION for ceramic manufacturing business. Both parties entered
into a contract of lease for a term of 10 years renewable for another 10 years.
Firestone built several warehouses and facilities therein.
Prior to the expiration of the said lease contract, Firestone wrote NDC
requesting for an extension of their lease agreement. Since business between
NDC and FIRESTONE went smooth, the lease was twice renewed, this time
conferring upon Firestone an express grant the first option to purchase the
leased premise in the event that NDC decided to dispose and sell the properties
including the lot. So Firestone now has the right of first refusal.
Eventually though, a Memorandum Order No. 214 was issued by then President
Corazon Aquino ordering the transfer of the whole NDC compound to the
National Government. The order of conveyance would automatically result in
the cancellation of NDC's total obligation in favor of the National Government.
The memorandum order was in consideration of NDC’s P57M debt.
And so, pursuant thereto, NDC had no choice but to transfer the property to
Polytechnic University of the Philippines, another GOCC, and in need of
expansion.
Firestone therefore instituted an action for specific performance to compel
NDC to sell the leased property in its favor.
ISSUE: Whether or not there is a valid sale between NDC and PUP
HELD: All three (3) essential elements of a valid sale, without which there can
be no sale, were attendant in the "disposition" and "transfer" of the property
from NDC to PUP - consent of the parties, determinate subject matter, and
consideration therefor.
1. consent is manifested by the Memo Order No. 214,
2. the subject matter was the property subject of the dispute.
3. the cancellation of liabilities constituted consideration
But the argument of PUP and NDC was untenable. GOCCs have personalities
separate and distinct from the government. “Sale” brings within its grasp the
whole gamut of transfers where ownership of a thing is ceded for consideration.
Since a sale was involved, the right of first refusal in favor of Firestone must be
respected. It forms an integral part of the lease and is supported by
consideration—Firestone having made substantial investments therein.
Only when Firestone fails to exercise such right may the sale to PUP proceed.

So here we see that GOCCs even though ‘government owned & controlled’ has
a personality of its own distinct and separate from that of the government.
And the intervention in a transaction of the Office of the President thru the
Executive Secretary DOES NOT CHANGE THE INDEPENDENT
EXISTENCE of a government entity as it deals with another government
entity.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. 264 SCRA
483 (1996)
FACTS: Petitioner Carmelo and Bauermann Inc. leased its parcel of land with
2-storey building to respondent Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire to
sell the leased premises, the LESSEE shall be given 30-days exclusive option to
purchase the same.
Carmelo informed Mayfair that it will sell the property to
Equatorial. Mayfair made known its interest to buy the property but only to the
extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.
ISSUE: WON the sale of the property to Equatorial is valid.
HELD: The sale of the property should be rescinded because Mayfair has the
right of first refusal. Both Equatorial and Carmelo are in bad faith because they
knew of the stipulation in the contract regarding the right of first refusal.
The stipulation is a not an option contract but a right of first refusal and as such
the requirement of a separate consideration for the option, has no applicability
in the instant case. The consideration is built in the reciprocal obligation of the
parties.
In reciprocal contract, the obligation or promise of each party is the
consideration for that of the other. (Promise to lease in return of the right to
first refusal)
With regard to the impossibility of performance, only Carmelo can be blamed
for not including the entire property in the right of first refusal. Court held
that Mayfair may not have the option to buy the property. Not only the leased
area but the entire property.
Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA 727, 741 (1997)
FACTS: Defendant Catalina Santos is the owner of 8 parcels of land located in
Parañaque. Frederick Chua leased the property of defendant and assigned all
rights and interest and participation in the leased property to Lee Ching Bing by
deed of assignment. Lee Ching Bing also assigned all his rights and interest in
the leased property to Parañaque Kings Enterprises, Inc. All of these
contracts/deeds were registered.
Paragraph 9 of the assigned leased (sic) contract provides among others that:
9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or mortgagee
thereof shall recognize and be bound by all the terms and conditions of this
lease agreement and shall respect this Contract of Lease as if they are the
LESSORS thereof and in case of sale, LESSEE shall have the first option or
priority to buy the properties subject of the lease;
Defendant Santos sold the eight parcels of land subject of the lease
to Defendant David Raymundo, for a consideration of P5Million, in
contravention of the contract of lease, for the first option or priority to buy was
not offered by defendant Santos to the plaintiff. Santos, realizing the error, she
had it reconveyed to her for the same consideration of P5Million and
subsequently the property was offered for sale to plaintiff for the sum of
P15Million, however the period of 10 days to make good of the offer expired.
Another deed of sale was executed by Santos in favor of Raymundo for
consideration of P9Million. Hence, the petitioner filed a complaint before the
RTC.
RTC dismissed the complaint for lack of a valid cause of action. It
ratiocinated that Santos complied with the lease agreement by offering the
properties for sale to the plaintiff and there was a definite refusal on the part of
the plaintiff to accept the offer.
CA affirmed in toto the ruling of RTC.
Issue: Whether or not there is valid cause of action.
Ruling: Yes.
The principal legal question, as stated earlier, is whether the complaint filed by
herein petitioner in the lower court states a valid cause of action. Since such
question assumes the facts alleged in the complaint as true, it follows that the
determination thereof is one of law, and not of facts. There is a question of law
in a given case when the doubt or difference arises as to what the law is on a
certain state of facts, and there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts.
A cause of action exists if the following elements are present: (1) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to respect or not to violate
such right, and (3) an act or omission on the part of such defendant violative of
the right of plaintiff or constituting a breach of the obligation of defendant to
the plaintiff for which the latter may maintain an action for recovery of damages.
A careful examination of the complaint reveals that it sufficiently alleges an
actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and petitioner,
the latter was granted the first option or priority to purchase the leased
properties in case Santos decided to sell. If Santos never decided to sell at all,
there can never be a breach, much less an enforcement of such right. But on
September 21, 1988, Santos sold said properties to Respondent Raymundo
without first offering these to petitioner. Santos indeed realized her error, since
she repurchased the properties after petitioner complained. Thereafter, she
offered to sell the properties to petitioner for P15 million, which petitioner,
however, rejected because of the ridiculous price. But Santos again appeared to
have violated the same provision of the lease contract when she finally resold
the properties to respondent Raymundo for only P9 million without first
offering them to petitioner at such price. Whether there was actual breach which
entitled petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses.
The decision of the RTC and CA are reversed and set aside. The case is
remanded to the RTC for further proceedings.
B. PERFECTION, Arts. 1325 & 1326 -
Art. 1325. Unless it appears otherwise, business advertisements of things for sale
are not definite offers, but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
• Contracts are perfected by mere consent, and from the moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature may be in keeping with good faith, usage, and law.
• A Contract of Sale is perfected at the moment there is meeting of
the minds upon the thing which is the object of the contract upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the forms of
contract.
• Ang Yu Asuncion v. CA: contract is perfected when the seller obligates
himself for a price certain, to deliver and to transfer ownership of a thing
or right to the buyer, over which the latter agrees.
• Upon its perfection, the parties may reciprocally demand performance,
wherein the vendee may compel the transfer of ownership and to deliver
the object of the sale; while the vendor may demand the vendee to pay
the thing sold.
• Ownership is not acquired by the vendee upon perfection of the contract
of sale. Ownership passes upon delivery.
• When parties are face to face: perfection when the offer is accepted
without conditions and without qualifications
• When Contract is thru correspondence: perfection when the offeror
receives or has knowledge of the acceptance by the offeree.
• Loss before perfection: seller bears the loss. There was no contract, for
there was no cause or consideration.
• Loss after perfection: Seller bears risk of loss and deterioration. If at the
time the contract of sale is perfected, the thing which is the object of the
 contract has been entirely lost, the contract shall be without any effect.
o But if the thing is lost in part only, the vendee may choose
between withdrawing from the contract and demanding the
remaining part, paying its price in proportion to the total sum
agreed upon.
o Where the parties purport a sale of specific goods, and the goods
without the knowledge of the seller have perished in part or have
wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option
treat the sale:
§ As voided, or
§ As valid in all of the existing goods or in so much
thereof as have not deteriorated, and as binding the
buyer to pay the agreed price for the goods in which the
ownership will pass, if the sale was divisible
o EXCEPTION: if the specific thing is entirely lost, contract is
void
Fule v. CA, 286 SCRA 685 (1998)
FACTS Gregorio Fule, a banker and a jeweller, offered to sell his parcel of land
to Dr. Cruz in exchange for P40,000 and a diamond earring owned by the latter.
A deed of absolute sale was prepared by Atty. Belarmino, and on the same day
Fule went to the bank with Dichoso and Mendoza, and Dr. Cruz arrived shortly
thereafter. Dr. Cruz got the earrings from her safety deposit box and handed it
to Fule who, when asked if those were alright, nodded and took the earrings.
Two hours after, Fule complained that the earrings were fake. He files a
complaint to declare the sale null and void on the ground of fraud and deceit.
Issue:
Whether the sale should be nullified on the ground of fraud
Held:
A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. Being
consensual, a contract of sale has the force of law between the contracting
parties and they are expected to abide in good faith by their respective
contractual commitments. It is evident from the facts of the case that there was
a meeting of the minds between petitioner and Dr. Cruz. As such, they are
bound by the contract unless there are reasons or circumstances that warrant its
nullification.
Contracts that are voidable or annullable, even though there may have been no
damage to the contracting parties are: (1) those where one of the parties is
incapable of giving consent to a contract; and (2) those where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud. The
records, however, are bare of any evidence manifesting that private respondents
employed such insidious words or machinations to entice petitioner into
entering the contract of barter. It was in fact petitioner who resorted to
machinations to convince Dr. Cruz to exchange her jewelry for the Tanay
property.
Furthermore, petitioner was afforded the reasonable opportunity required in
Article 1584 of the Civil Code within which to examine the jewelry as he in fact
accepted them when asked by Dr. Cruz if he was satisfied with the same. By
taking the jewelry outside the bank, petitioner executed an act which was more
consistent with his exercise of ownership over it. This gains credence when it is
borne in mind that he himself had earlier delivered the Tanay property to Dr.
Cruz by affixing his signature to the contract of sale. That after two hours he
later claimed that the jewelry was not the one he intended in exchange for his
Tanay property, could not sever the juridical tie that now bound him and Dr.
Cruz. The nature and value of the thing he had taken preclude its return after
that supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior kind.
Ownership over the parcel of land and the pair of emerald-cut diamond earrings
had been transferred to Dr. Cruz and petitioner, respectively, upon the actual
and constructive delivery thereof. Said contract of sale being absolute in nature,
title passed to the vendee upon delivery of the thing sold since there was no
stipulation in the contract that title to the property sold has been reserved in the
seller until full payment of the price or that the vendor has the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.
While it is true that the amount of P40,000.00 forming part of the consideration
was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient
 cause to invalidate the contract or bar the transfer of ownership and possession
of the things exchanged considering the fact that their contract is silent as to
when it becomes due and demandable.
1. Perfection - (Arts. 1475)
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts.
2. When Deviation Allowed
Villonco v. Bormacheco, 65 SCRA 352 (1975)
FACTS: Francisco Cervantes of Bormaheco Inc. agrees to sell to Villonco
Realty a parcel of land and its improvements located in Buendia, Makati.
Bormaheco made the terms and condition for the sale and Villonco returned it
with some modifications.
The sale is for P400 per square meter but it is only to be consummated after
respondent shall have also consummated purchase of a property in Sta. Ana,
Manila. Bormaheco won the bidding for the Sta.Ana land and subsequently
bought the property.
Villonco issued a check to Bormaheco amounting to P100,000 as earnest
money. 26 days after signing the contract of sale, Bormaheco returned the
P100,000 to Villonco with 10% interest for the reason that they are not sure yet
if they will acquire the Sta.Ana property.
Villonco rejected the return of the check and demanded for specific
performance.
ISSUE: WON Bormaheco is bound to perform the contract with Villonco.
HELD: The contract is already consummated when Bormaheco accepted the
offer by Villonco. The acceptance can be proven when Bormaheco accepted
the check from Villonco and then returned it with 10% interest as stipulated in
the terms made by Villonco.
On the other hand, the fact that Villonco did not object when Bormaheco
encashed the check is a proof that it accepted the offer of Bormaheco.
Whenever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the contract" (Art. 1482, Civil
Code).
3. Sale by Auction –
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by
the fall of the hammer, or in other customary manner. Until such announcement
is made, any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to
bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to
employ or induce any person to bid at such sale on his behalf or for the auctioneer,
to employ or induce any person to bid at such sale on behalf of the seller or
knowingly to take any bid from the seller or any person employed by him. Any sale
contravening this rule may be treated as fraudulent by the buyer.
Art. 1403 (2)(d). An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer accept and receive part
of such goods and chattels, or the evidences, or some of them, of such things in
action, or pay at the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales book, at the time
of the sale, of the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a sufficient
memorandum.
Art. 1326. Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
4. Earnest Money -
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract.
Spouses Doromal, Sr. v. CA, 66 SCRA 575 (1975)
FACTS: A parcel of land in Iloilo were co-owned by 7 siblings all surnamed
Horilleno. 5 of the siblings gave a SPA to their niece Mary Jimenez, who
succeeded her father as a co-owner, for the sale of the land to father and son
Doromal. One of the co-owner, herein petitioner, Filomena Javellana however
did not gave her consent to the sale even though her siblings executed a SPA
for her signature. The co-owners went on with the sale of 6/7 part of the land
and a new title for the Doromals were issued.
Respondent offered to repurchase the land for 30K as stated in the deed of sale
but petitioners declined invoking lapse in time for the right of repurchase.
Petitioner also contend that the 30K price was only placed in the deed of sale
to minimize payment of fees and taxes and as such, respondent should pay the
real price paid which was P115, 250.
ISSUE: WON the period to repurchase of petitioner has already lapsed.
HELD: Period of repurchase has not yet lapsed because the respondent was
not notified of the sale. The 30-day period for the right of repurchase starts only
after actual notice not only of a perfected sale but of actual execution and
delivery of the deed of sale.
The letter sent to the respondent by the other co-owners cannot be considered
as actual notice because the letter was only to inform her of the intention to sell
the property but not its actual sale. As such, the 30-day period has not yet
commenced and the respondent can still exercise his right to repurchase.
The respondent should also pay only the 30K stipulated in the deed of sale
because a redemptioner’s right is to be subrogated by the same terms and
conditions stipulated in the contract.
Serrano v. Caguiat, 517 SCRA 57
FACTS: Spouses Serrano (Onnie Serrano & Amparo Herrera), petitioners, are
the registered owners of a lot located in Las Piñas
Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the
lot. Petitioners agreed to sell it at P1,500.00 per square meter.
Respondent then gave petitioners P100,000.00 as partial payment. In turn,
petitioners gave respondent the corresponding receipt stating that respondent
promised to pay the balance of the purchase price on or before March 23, 1990
On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu,
wrote petitioners informing them of his readiness to pay the balance of the
contract price and requesting them to prepare the final deed of sale.3
On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to
respondent stating that petitioner Amparo Herrera is leaving for abroad on or
before April 15, 1990 and that they are canceling the transaction. Petitioners
also informed respondent that he can recover the earnest money of P100,000.00
anytime.
Again, on April 6, 1990,5 petitioners wrote respondent stating that they
delivered to his counsel Philippine National Bank Manager's Check No. 790537
dated April 6, 1990 in the amount of P100,000.00 payable to him.
In view of the cancellation of the contract by petitioners, respondent filed a
complaint against them for specific performance and damages
RTC: In favor of the respondents – THERE WAS A PERFECTED SALE
CA: Affirmed RTC
ISSUE: Whether there was a perfected sale between the parties
RULING: Petitioners contend that the Receipt is not a perfected contract of
sale as provided for in Article 14589 in relation to Article 147510 of the Civil
Code. The delivery to them of P100,000.00 as down payment cannot be
considered as proof of the perfection of a contract of sale under Article
148211 of the same Code since there was no clear agreement between the
parties as to the amount of consideration.
In holding that there is a perfected contract of sale, both courts mainly relied
on the earnest money given by respondent to petitioners. They invoked Article
1482 of the Civil Code which provides that "Whenever earnest money is given
in a contract of sale, it shall be considered as part of the price and as proof of
the perfection of the contract."
We are not convinced.
In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages
of a contract of sale are: (1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place upon the concurrence of
the essential elements of the sale, which is the meeting of the minds of the
parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.
With the above postulates as guidelines, we now proceed to determine the real
nature of the contract entered into by the parties.
It is a canon in the interpretation of contracts that the words used therein should
be given their natural and ordinary meaning unless a technical meaning was
intended.14 Thus, when petitioners declared in the said "Receipt for Partial
Payment" that they '
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF
ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL
PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED
BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE
PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE
WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS
DATE.
there can be no other interpretation than that they agreed to a conditional
contract of sale, consummation of which is subject only to the full
payment of the purchase price.
The differences between a contract to sell and a contract of sale are well-settled
in jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that:
x x x [a] distinction must be made between a contract of sale in which title passes
to the buyer upon delivery of the thing sold and a contract to sell x x x where
by agreement the ownership is reserved in the seller and is not to pass until the
full payment, of the purchase price is made. In the first case, non-payment of
the price is a negative resolutory condition; in the second case, full payment is
a positive suspensive condition. Being contraries, their effect in law cannot be
identical. In the first case, the vendor has lost and cannot recover the ownership
of the land sold until and unless the contract of sale is itself resolved and set
aside. In the second case, however, the title remains in the vendor if the vendee
does not comply with the condition precedent of making payment at the time
specified in the contract.
In this case, the "Receipt for Partial Payment" shows that the true agreement
between the parties is a contract to sell.
It is true that Article 1482 of the Civil Code provides that "Whenever earnest
money is given in a contract of sale, it shall be considered as part of the price
and proof of the perfection of the contract." However, this article speaks
of earnest money given in a contract of sale. In this case, the earnest money
was given in a contract to sell. The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the
 purchase price.21 Now, since the earnest money was given in a contract to sell,
Article 1482, which speaks of a contract of sale, does not apply.
As previously discussed, the suspensive condition (payment of the balance by
respondent) did not take place. Clearly, respondent cannot compel petitioners
to transfer ownership of the property to him.
WHEREFORE, we GRANT the instant Petition for Review.
5. Place of Perfection (Art. 1319)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.
C. FORM OF SALES (Arts. 1375, 1358, 1405, 1406 and 1483)
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
Art. 1358. The following must appear in a public document:
1. Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property;
sales of real property or of an interest therein are governed by articles
1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
3. The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action
are governed by articles 1403, No. 2 and 1405.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article
1403, are ratified by the failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefits under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
Art. 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of mouth,
or partly in writing and partly by word of mouth or may be inferred from the
conduct of the parties.
1. Really No Form-
Dalion v. CA, 182 SCRA 872 (1990)
FACTS: A land in Southern Leyte was declared in the name of Segundo Dalion.
Sabesaje sued to recover ownership this land based on a private document of
absolute sale, allegedly executed by Segundo Dalion.
Dalion, however, denied the sale, saying that:
• The document was fictitious
• His signature was a forgery, and
• That the land is conjugal property, which he and his wife acquired in
1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta
Absoluta."
The spouses denied the claims of Sabesaje that after executing a deed of sale
over the parcel of land, they had pleaded with Sabesaje to be allowed to
administer the land because Dalion did not have livelihood.
Spouses Dalion admitted, however, administering 5 parcels of land in Southern
Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died
in 1956.

The Dalions never received their agreed 10% and 15% commission on the sales
of copra and abaca. Sabesaje's suit, they say, was intended merely to harass and
forestall Dalion's threat to sue for these unpaid commissions.
Trial Court decided in favor of Sabesaje and ordered the Dalions to deliver the
parcel of land in a public document. CA affirmed.
Issues:
1. Was the contract of sale valid?
2. Is a public document needed for transfer of ownership?
Held:
1. Yes. People who witnessed the execution of the deed positively testified on
its authenticity. They stated that it had been executed and signed by the
signatories. A contract of sale is a consensual contract, which means that the
sale is perfected by mere consent. No particular form is required for its validity.
Upon perfection of the contract, the parties may reciprocally demand
performance (NCC 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to
pay the thing sold (NCC 1458).
2. No. The provision of NCC 1358 of NCC on the necessity of a public
document is only for convenience, not for validity or enforceability. The trial court thus
rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and
to execute corresponding formal deed of conveyance in a public document.
Under NCC 1498, when the sale is made through a public instrument, the
execution is equivalent to the delivery of the thing. Delivery may either be actual
(real) or constructive. Thus delivery of a parcel of land may be done by placing
the vendee in control and possession of the land (real) or by embodying the sale
in a public instrument (constructive).
Secuya v. Vda. De Selma, 326 SCRA 244 (2000)
FACTS: Doctrine: Although there is no form required for a sale to be valid, a
sale pertaining to land must be registered in the Registry of Property. If it was
not, and that it was only a private document, then the sale is valid as to only the
contracting parties, but not to 3rd parties.
FACTS: Maxima partitioned her land and sold it. Secuya eventually held
possession of the land and cultivated it. When he died, his siblings inherited it.
A certain Selma came a long and bought a partition of the Maxima’s land. In
Selma’s title, the land in the possession of the Secuyas was within the boundary
bought by Selma. Selma now asserts ownership over the land and files a case of
quieting of title. SC says in this case, Selma is the owner because of the strength
of his title. Maxima Caballero owned a land. She partitioned the land and
executed a deed selling 1/3 of the land to Pacencia Sabellona. Pacencia took
possession of the parted 1/3 portion. Dalmacio Secuya bought the land from
Pacenciaby means of a private document which was lost. Such sale was
confirmed by Ramon Sabellona, the only heir of Pacienca.
Pursuant to Pacencia’s will, Ramos inherited all Pacencia’s properties. After
Secuya bought the land, Secuya took possession of the land and cultivated it. A
certain Edilberto Superales married Secuya’s neice..With Secuya’s tolerance,
Superales was able to build his house on the land and continuously lived there.
Eventually, Secuya died. Being single, his brothers and sisters took physical
possession of the land. Then, a certain Selma bought a portion of Lot 5679. The
land in the Secuyas’ possession was a portion of Lot 5679 and is included within
the boundary of what Selma acquired. Selma is now asserting ownership over
the land on the strength of his title. RTC-Cebu decided in favor of Selma. CA
affirmed.
ISSUE: Does the land belong to Selma?
HELD: Yes.
There is strength in his title. Since this is an action for quieting of title, it must
first be established if the Secuyas have the requisite title that would enable them
to avail of the remedy of quieting of title. The Secuyas contest their claim on
the basis of 2 documents: the Agreement of Partition executed by Maxima
Caballero and Paciencia Sabellona, and The Deed of Confirmation of Sale
executed by Ramon Sabellona.
Upon closer look, the SC says this Agreement is not one of partition, because
there was no property to partition, and the parties in the contract are not co-
 owners. This is one in the nature of a trust agreement. Trust is the right to the
beneficial enjoyment of property, while the legal title to land is vested in another.
Caballero merely entrusted the portion specified to Sabellona. It therefore does
not constitute a title. Since this is a trust agreement, it can be repudiated. This
(right to) repudiation does not expire, and was therefore exercised by the heirs
of Caballeros, when they sold the land to a 3rd party buyer (Selma).
2. Exceptions: When Form Important -
Art. 1403. The following contracts are unenforceable, unless they are ratified:
1. Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
2. Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a. An agreement that by its terms is not to be performed within a year
from the making thereof;
b. A special promise to answer for the debt, default, or miscarriage of
another;
c. An agreement made in consideration of marriage, other than a mutual
promise to marry;
d. An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
e. An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
f. A representation as to the credit of a third person.
3. Those where both parties are incapable of giving consent to a contract.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Art.
1403, are ratified by the failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefits under them.
Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Yuviengco v. Dacuycuy, 104 SCRA 668 (1981)
ART. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are constitute the contract. The
offer must be certain the acceptance absolute. A qualified acceptance constitute
a counter-offer.
Acceptance made by letter or telegram does not bind offerer except from the
time it came to his knowledge. The contract, in a case, is presumed to have been
entered into in the place where the offer was made.
Facts: In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property (land and
building) for P6,500,000.00 provided the latter made known their own decision
to buy it not later than July 31, 1978, the respondents' reply that they were
agreeable was not absolute, so much so that when ultimately petitioners'
representative went to Cebu City with a prepared and duly signed contract for
the purpose of perfecting and consummating the transaction, respondents and
said representative found variance between the terms of payment stipulated in
the prepared document and what respondents had in mind, hence the bank draft
which respondents were delivering to the representative was returned and the
document remained unsigned by respondents.
The respondents, in their complaint, contended “That on August 1, 1978 Pedro
Gamboa arrived Tacloban City bringing with him the prepared contract to
purchase and to sell referred to in his telegram dated July 27, 1978 for the
purpose of closing the transactions referred to in paragraphs 8 and 9 hereof,
however, to the complete surprise of plaintiffs, the defendant without giving
notice to plaintiffs, changed the mode of payment with respect to the balance
of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty
(30) days from execution of the contract instead of the former term of ninety
(90) days.”
Issues:
1. Whether or not the complaint sufficiently states a cause of action?
2. Whether or not the claim alleged therein is unenforceable under the Statute of Frauds?
Ruling:
1. The court held that although there was no perfected contract of sale in the
light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply
thereto of Yao; it being doubtful whether or not, under Article 1319 of the
Civil Code, the said letter may be deemed as an offer to sell that is "certain",
and more, the Yao telegram is far from being an "absolute" acceptance
under said article, still there appears to be a cause of action alleged in
Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged
therein that subsequent to the telegram of Yao, it was agreed that the
petitioners would sell the property to respondents for P6.5 M, by paving
P2 M down and the balance in 90 days and which agreement was allegedly
violated when in the deeds prepared by Atty. Gamboa and taken to
Tacloban, only 30 days were given to respondents.
2. Further, the court ruled that in any sale of real property on installments, the
Statute of Frauds read together with the perfection requirements of Article
1475 of the Civil Code must be understood and applied in the sense that
the idea of payment on installments must be in the requisite of a note or
memorandum therein contemplated.
Limketkai Sons Milling, Inc. v. CA, 255 SCRA 626
FACTS:
• May 14, 1976 – Philippine Remnants Co., Inc. constituted BPI as its trustee
to manage, administer and sell its real estate property.. This includes the
disputed parcel of land in Bagong Ilog, Pasig.
• June 23, 1988 – Revilla, a licensed broker, was given the authority by BPI
to sell the land for P1000 per square meter.
• Lim of Limketkai Milling agreed to buy the property and by July 1988, Lim
and Limketkai visited BPI to confirm the sale
o They were entertained by BPI VP Albano and AVP Aromin. Limketkai
requested that the price be lowered to P900 per sqm while Albano said
that the price was P1100 per sqm. They finally agreed to the price of
P1000 sqm and that the payment be given in cash.
• Lim requested if it was possible to draw up payment terms, despite the
previous agreement to pay in cash. The BPI officials responded by saying
that it would be all right to try to apply for payment terms but if the ssaid
payment terms were to be disapproved, payment would have to be in cash.
• July 11, 1988 – Albano dictated the terms through which the installment
payment would be approved. Lim wrote BPI through Albano, embodying
the initial payment at 10% and the remaining 90% payable within 90 days.
• Lim later learned that his offer to pay on terms had been frozen
• July 18, 1988 – Lim went to BPI to pay the total amount (P 33,056,000) in
cash to Albano but Albano refused to accept it, saying that he no longer had
the authority to sell the property. Lim then went to VP Bona who also
would not accept the payment.
• Aug. 25, 1988 – Limketkai filed an action for specific performance with
damages. – BPI already issued a deed of sale for the land to National
Bookstore
• Trial Court ruling: Declared the deed of sale to NBS null and void; ordered
BPI to issue deed of sale in favor of Limketkai; and ordered BPI and NBS
to pay actual and consequential damages to Limketkai
• The CA reversed the decision of the trial court thus the appeal.
Petitioners’ Clam: The contract to sell and to buy was perfected on July 11,
1988 when its top officials and broker Revilla finalized the details with BPI VPs
Merlin Albano and Rolando V. Aromin at the BPI offices
Respondents’ Comments: What transpired on this date were part of
continuing negotiations to buy the land and not the perfection of the sale. VPs
Aromin and Albano had no authority to bind BPI on this particular transaction.
The subsequent attempts of petitioner to pay under terms instead of full
payment in cash constitutes a counter-offer which negates the existence of a
perfected contract:
ISSUES:
1. W/N the contract between BPI and Limketkai had been perfected – YES
2. W/N the bank officials were authorized to transact and enter into such
contract – YES
3. W/N competent evidence is available to support the contention that the
contract was indeed perfected – YES
4. W/N the sale of the land to NBS pending litigation was effected in good faith
– YES
HELD:
1. Yes, the contract had already been perfected. A contract undergoes
various stages that include its negotiation or preparation, its perfection, and,
finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time the
contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof.
- The negotiation or preparation stage started with the authority given by
Philippine Remnants to BPI to sell the lot, followed by (a) the authority given
by BPI and confirmed by Philippine Remnants to broker Revilla to sell the
property, (b) the offer to sell to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and Albano at the BPI offices.
- The perfection of the contract took place when Aromin and Albano, acting
for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for
petitioner Limketkai, agreed to buy the disputed lot at P1,000 per sqm. Aside
from this there was the earlier agreement between petitioner and the authorized
broker. There was a concurrence of offer and acceptance, on the object, and on
the cause thereof.
- The fact that the deed of sale still had to be signed and notarized does not
mean that no contract had already been perfected.
2. Yes, the bank officials were authorized to transact with Limketkai for
the sale of the parcel of land.
- Accordingly, a banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the agent
is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person for his own ultimate benefit.
- Revilla (the broker) was authorized by BPI to transact business in their stead.
If Revilla were given the authority, it would be senseless to doubt whether or
not the bank officials were given the same authority. Aromin had been with the
bank for a relatively long period of time (since 1969) and had handled real estate
matters since 1985. There is no proof that Aromin was acting for his own
benefit.
3. Yes, the evidence presented was substantial. Any document or writing
which satisfies the requirements of a statute as to content and signature can be
regarded as a memorandum or a note.
4. Yes, the sale of the land to NBS was done in bad faith. It is the very
nature of the deed of absolute sale between BPI and NBS which, however,
clearly negates any allegation of good faith on the part of the buyer.
- Instead of the vendee insisting that the vendor guarantee its title to the land
and recognize the right of the vendee to proceed against the vendor if the time
to the land turns out to be defective as when the land belongs to another person,
the reverse is found in the deed of sale between BPI and NBS. Any losses which
NBS may incur in the event the title turns out to be vested in another person
are to be borne by NBS alone. BPI is expressly freed under the contract from
any recourse of NBS against it should BPI’s title be found defective.
- NBS ignored the notice of lis pendens when it bought the lot.
- NBS and BPI conspired to prevent Limketkai from acquiring the property.
- The sale was supposed to be done by a broker but top BPI officials took over
when a close friend became interested.
- BPI Senior VP Barelon admitted that he and NBS President Ramos were
friends.
- Feliciano, in behalf of NBS, tried to pay off Limketkai so that the latter would
drop the case.
Ortega v. Leonardo, 103 Phil. 870 (1958)
FACTS: Ortega occupied a parcel of land, but was disputed by Leonardo.
Ortega and Leonardo both agreed to a compromise, where Ortega would desist
from pressing her claim and that Leonardo would sell to her a portion provided
thereof, provided she paid for the surveying of the lot. Ortega thus desisted the
claim, paid for the surveying of the lot and the preparation of the plan and paid
regularly a monthly rental. When Leonardo acquired the title, he refused to sell
the agreed portion of the lot. He claims that the contract is unenforceable based
on Statute of Frauds.
ISSUE: Whether or not the contract is unenforceable based on the Statute of
Frauds
HELD: No. The contract is enforceable. This case described several
circumstance indicating partial performance: relinquishment of rights,
continued possession, building of improvements, tender of payment plus the
surveying of the lot at plaintiff’s expense and the payment of rentals. Hence, as
there was a partial
Claudel v. CA, 199 SCRA 113 (1991)
DOCTRINE: a sale of land, once consummated, is valid regardless of the form
it may have been entered into. For nowhere does law or jurisprudence prescribe
that the contract of sale be put in writing before such contract can validly cede
or transmit rights over a certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the ownership
of the property, the person against whom that claim is brought can not present
any proof of such sale and hence has no means to enforce the contract. Thus
the Statute of Frauds was precisely devised to protect the parties in a contract
of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.
FACTS:
• As early as Dec 28, 1922, Cecilio Claudel acquired from the Bureau of
Lands Lot No. 1230. He dutifully paid real estate taxes until his death.
His widow Basilia, and later her son Jose, thereafter paid the taxes.
However, this parcel of land would later become the subject of
protracted litigation 39 years after his death.
• 2 branches of Cecilio’s family contested the ownership over the land:
on one hand the children of Cecilio (Modesto, Loreta, Jose, Benjamin,
Pacita, etc --- known as Heirs of Cecilio), and on the other, the brother
and sisters of Cecilio: Macario, etc (private respondents Siblings of
Cecilio).
• In 1972, the Heirs of Cecilio partitioned the lot among themselves and
obtained TCTs on their shares.
• Four years later, the Siblings of Cecilio filed a “complaint for
cancellation of titles and reconveyance with damages”. They alleged
that 46 years earlier, their parents had purchased from Cecilio several
portions of Lot 1230 for P30. They admitted that the transaction was
verbal. However, as proof of sale, the Siblings of Cecilio presented a
subdivision plan of the said land indicating the portions allegedly sold
to the Siblings of Cecilio.
CFI Ruling: Dismissed the complaint. Plaintiffs failed to present any
document evidencing the alleged sale of the property to their predecessors in
interest by the father of the defendants. Since the subject matter of the supposed
sale is a real property, the absence of any document evidencing the sale would
preclude the admission of oral testimony (Statute of Frauds). The action has
also prescribed cause it has been more than 30 years since the cause of action
has accrued.
CA Ruling: Reversed the decision.
The action was not for the recovery of possession of real property but for the
cancellation of titles issued to the HEIRS OF CECILIO in 1973. It also ruled
that there is no prescription yet because the siblings of Cecilio commenced the
complaint for cancellation of titles on Dec. 7, 1976 or only four years after the
heirs of Cecilio partitioned the lot among themselves.
Ordered the cancellation of several TCTs in the names of the Heirs of Cecilio.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927
square meters, respectively would go to Cecilio or his heirs, the herein
petitioners. Beyond these apportionments, the HEIRS OF CECILIO would
not receive anything else.
ISSUE:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for cancellation of
titles and reconveyance with damages (the action filed by the SIBLINGS OF
CECILIO) should be counted from the alleged sale upon which they claim their
ownership (1930) or from the date of the issuance of the titles sought to be
cancelled in favor of the HEIRS OF CECILIO (1976).
HELD: YES/NO
1. NO, it cannot be proved.
2. It should be counted from the date of the issuance of the titles sought to be
cancelled in favor of the HEIRS OF CECILIO (1976).
RULE:
1. A sale of land, once consummated, is valid regardless of the form it
may have been entered into. For nowhere does law or jurisprudence
prescribe that the contract of sale be put in writing before such
contract can validly cede or transmit rights over a certain real property
between the parties themselves.
However, in the event that a third party, as in this case,
disputes the ownership of the property, the person against whom that
claim is brought can not present any proof of such sale and hence has
no means to enforce the contract. Thus the Statute of Frauds was
precisely devised to protect the parties in a contract of sale of real
property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.
Art. 1403 (Civil Code). The following contracts are
unenforceable, unless they are ratified:
2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following cases, an
agreement hereafter made shall be unenforceable by action
unless the same, or some note or memorandum thereof, be in
writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;
The purpose of the Statute of Frauds is to prevent fraud and perjury
in the enforcement of obligations depending for their evidence upon
the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in Writing.
Except under the conditions provided by the Statute of Frauds, the
existence of the contract of sale made by Cecilio with his siblings can
not be proved.
2. On the second issue, the belated claim of the SIBLINGS OF
CECILIO who filed a complaint in court only in 1976 to enforce a
light acquired allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of
action from the oral purchase made by their parents in 1930, then the action
filed in 1976 would have clearly prescribed. More than six years had lapsed.
The Court does not agree with the parties SIBLINGS OF CECILIO when
they reason that an implied trust in favor of the SIBLINGS OF CECILIO
was established in 1972, when the HEIRS OF CECILIO executed a
contract of partition over the said properties.
But as the Court had pointed out, the law recognizes the superiority of the
torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO
carries more weight as proof of ownership than the survey or subdivision
plan of a parcel of land in the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No
possession by any person of any portion of the land could defeat the title
of the registered owners thereof.
DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED We
REVERSE and SET ASIDE the decision rendered in CA-G.R. CV No. 04429,
and we hereby REINSTATE the decision of the then Court of First Instance
of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the
dismissal of the Complaint for Cancellation of Titles and Reconveyance with
Damages filed by the Heirs of Macario, Esperidiona Raymunda, and Celestina,
all surnamed CLAUDEL. Costs against the private respondents.
Alfredo v. Boras, 404 SCRA 145 (2003)
FACTS:
• Private respondents, spouses Borras filed a complaint for specific
performance against Godofredo and Carmen Alfredo before the RTC.
• The Alfredos mortgaged their subject land for P7,000 with the DBP. To
pay the debt, they sold the land to the Sps. Borras for P15,000, the Borras’
to pay the DBP loan and its accumulated interest, and the balance to be
paid in cash to the sellers.
• The Sps. Borras gave the Alfredos the money to pay the loan to DBP
which signed the release of mortgage and returned the owner’s duplicate
copy of the OCT to the Alfredos. The Borras’ also paid the purchase price
of the for which a receipt was issued.
• The Alfredos delivered to the Borras the owner’s duplicate of the OCT,
with the document of cancellation of mortgage, official receipts of realty
tax payments, and tax declaration in the name of Godofredo.
• As the new owners of the land, the Borras were introduced to the
Natanawans, the old tenants. The Borras then took possession of the
Subject Land.
• In 1994, the Borras’ learned that hired persons had entered in the land and
were cutting trees under instructions of allegedly new owners of the land.
The Borras’ found out that the Alfredos re-sold portions of the land to
several persons.
• The Borras’ filed an adverse claim with the Register of Deeds, where they
found out that the Alfredos’ secured an owners’s duplicate copy of the
OCT over the land after filing a petition in court for the issuance of a new
copy.
• The Borras’ sent a letter of complaint to the Alfredos who did not reply.
Hence the complaint for specific performance.
• The complaint was amended to include the subsequent buyers of the
subdivided portions of the land. The Register of Deeds had issued them
TCTs to the lots they purchased.
• The Alfredos and the Subsequent Buyers (Petitioners) argue that the
action is unenforceable under the Statute of Frauds since there is no
written instrument evidencing the alleged contract of sale over the land in
favor of the Borras’. The Petitioners objected to whatever parole evidence
the Borras’ introduced. Petitioners assert that the Subsequent Buyers were
buyers in good faith and for value.
• As counterclaim, petitioners sought payment of attorney’s fees and
incidental expenses.
• The RTC rendered its decision in favor of the Borras’, the deeds of sale to
the subsequent buyers being null and void.
o There was a perfected contract of sale between the sps. Borras and
Alfredo as all elements of a contract of sale were present (object was
the subject lot, purchase price 15k, manner of payment as evidenced by
a receipt). Other proofs included: (1) delivery of the subject land; (2)
treatment of the tenants as their own; (3) turnover of documents to the
Borras’ such as the owner’s duplicate copy of title, tax declaration,
receipts of realty tax payments in Godofredo’s name; and (4) the
cancellation of the mortgage by DBP.
o The receipt of payment by Carmen served as an acknowledgement, if
not a ratification of the verbal sale between the Alfredos and Borras’.
o The Statute of Frauds is not applicable because in this case the sale was
perfected.
o The Subsequent Buyers were also not innocent purchasers as
• The Petitioners appealed to the CA who affirmed the RTC’s decision. The
CA also denied the petitioners’ motion for reconsideration.
ISSUE: Whether or not the sale of the subject land was valid and enforceable
even though orally entered into
HELD: Yes. The contract between the two parties was a perfected contract
supported by substantial evidence. It has also been consummated because the
sellers and buyers both performed their respective obligations under the
contract. The RTC and CA correctly refused to apply the Statute of Frauds to
this case. The Statute of Frauds provides that a contract for the sale of real
property shall be unenforceable unless the contract or some note or
memorandum of the sale is in writing and subscribed by the party charged or
his agent. The receipt issued by Carmen, which is a memorandum of the sale,
removes the transaction from the provisions of the Statute of Frauds. The
Statute of Frauds applies only to executory contracts and not to contracts either
partially or totally performed. In the instant case, the parties have consummated
the sale, both performing their respective obligations. In addition, a contract
that violates the Statute of Frauds is ratified by the acceptance of benefits under
the contract. The Alfredos benefited from the contract because they were able
to pay off their DBP loan and secure the cancellation of the mortgage. They
also accepted payment of the balance of the purchase price.

D. THE E-COMMERCE ACT ON THE FORMATION OF SALE

CONTRACTS